Question 1

If consumers expect a tax cut to be temporary

Accepted Answer

A) the increase in consumption will be much larger than for a permanent tax cut. 
B) the increase in consumption will be much smaller than for a permanent tax cut. 
C) the decrease in consumption will be much smaller than for a permanent tax cut. 
D) consumption remains unchanged. 
E) the overall effects are much larger than for a permanent tax cut. 
A) the increase in consumption will be much larger than for a permanent tax cut. 
B) the increase in consumption will be much smaller than for a permanent tax cut. 
C) the decrease in consumption will be much smaller than for a permanent tax cut. 
D) consumption remains unchanged. 
E) the overall effects are much larger than for a permanent tax cut.

Question 2

The private supply of credit is an increasing function of the real interest rate if

Accepted Answer

A) the income effects outweighs the substitution effects when added across all consumers. 
B) the income effect outweighs the substitution effects for borrowers. 
C) the substitution effects outweighs the income effects when added across all consumers. 
D) the substitution and income effects cancel each other. 
E) consumers are rational. 
A) the income effects outweighs the substitution effects when added across all consumers. 
B) the income effect outweighs the substitution effects for borrowers. 
C) the substitution effects outweighs the income effects when added across all consumers. 
D) the substitution and income effects cancel each other. 
E) consumers are rational.

Question 3

A consumer is a lender if

Accepted Answer

A) the consumer's indifference curves are relatively flat. 
B) optimum current consumption is greater than current disposable income. 
C) current disposable income is greater than future disposable income. 
D) optimum current consumption is less than current disposable income. 
E) the consumer's indifference curves are negatively sloped. 
A) the consumer's indifference curves are relatively flat. 
B) optimum current consumption is greater than current disposable income. 
C) current disposable income is greater than future disposable income. 
D) optimum current consumption is less than current disposable income. 
E) the consumer's indifference curves are negatively sloped.

Question 4

A permanent decrease in taxes leads to

Accepted Answer

A) no changes to consumption. 
B) a large increase in current consumption. 
C) a small increase in current consumption. 
D) a small decrease in current consumption. 
E) a large decrease in future consumption. 
A) no changes to consumption. 
B) a large increase in current consumption. 
C) a small increase in current consumption. 
D) a small decrease in current consumption. 
E) a large decrease in future consumption.

Question 5

Distorting taxes can invalidate Ricardian equivalence because

Accepted Answer

A) the distortions are only faced by the business sector. 
B) they are inferior to lump-sum taxes. 
C) they confuse consumers about the need for government to repay its debt. 
D) they are more popular, politically, than lump-sum taxes. 
E) alternative ways of collecting the same tax revenue produce different amounts of lost welfare. 
A) the distortions are only faced by the business sector. 
B) they are inferior to lump-sum taxes. 
C) they confuse consumers about the need for government to repay its debt. 
D) they are more popular, politically, than lump-sum taxes. 
E) alternative ways of collecting the same tax revenue produce different amounts of lost welfare.

Question 6

Bonds are assumed to trade directly

Accepted Answer

A) through financial intermediaries. 
B) through the Bank of Canada. 
C) in the stock market. 
D) through the federal government. 
E) in the credit market. 
A) through financial intermediaries. 
B) through the Bank of Canada. 
C) in the stock market. 
D) through the federal government. 
E) in the credit market.

Question 7

The optimal consumption bundle is where

Accepted Answer

A) the marginal rate of substitution in the current period equals the marginal rate of substitution in the future period. 
B) c = y - t - s. 
C) MRS = 1 = r. 
D) c = s. 
E) budget constraint. 
A) the marginal rate of substitution in the current period equals the marginal rate of substitution in the future period. 
B) c = y - t - s. 
C) MRS = 1 = r. 
D) c = s. 
E) budget constraint.

Question 8

A one-unit decrease in current income, and a one-unit increase in lifetime wealth

Accepted Answer

A) both have no effect on the consumer's behaviour. 
B) will both have the same effect on savings. 
C) imply that future consumption goes down. 
D) have the same effect on the consumer's current and future consumption. 
E) have different effects on the consumer's current and future consumption. 
A) both have no effect on the consumer's behaviour. 
B) will both have the same effect on savings. 
C) imply that future consumption goes down. 
D) have the same effect on the consumer's current and future consumption. 
E) have different effects on the consumer's current and future consumption.

Question 9

When different consumers pay different amounts of taxes, Ricardian equivalence may fail because

Accepted Answer

A) alternative ways of collecting the same tax revenue can have different welfare effects. 
B) consumers can become jealous of one another. 
C) such differences in taxes create welfare losses to the business community. 
D) such differences in taxes create credit market imperfections. 
E) higher taxes on more talented people may be politically popular. 
A) alternative ways of collecting the same tax revenue can have different welfare effects. 
B) consumers can become jealous of one another. 
C) such differences in taxes create welfare losses to the business community. 
D) such differences in taxes create credit market imperfections. 
E) higher taxes on more talented people may be politically popular.

Question 10

Ricardian equivalence suggests that the government must pay off its debt by

Accepted Answer

A) reducing government spending in the future. 
B) increasing the real interest rate. 
C) transferring surpluses to the debt. 
D) reducing private savings in the future. 
E) increasing taxes in the future. 
A) reducing government spending in the future. 
B) increasing the real interest rate. 
C) transferring surpluses to the debt. 
D) reducing private savings in the future. 
E) increasing taxes in the future.

Question 11

An important reason why Ricardian equivalence may fail is if

Accepted Answer

A) real interest rates start to increase. 
B) state and local governments also engage in debt finance. 
C) some consumers are borrowers, while other consumers are lenders. 
D) borrowing and lending is done through intermediaries. 
E) government debt incurred today may not be paid off until after some current consumers are deceased. 
A) real interest rates start to increase. 
B) state and local governments also engage in debt finance. 
C) some consumers are borrowers, while other consumers are lenders. 
D) borrowing and lending is done through intermediaries. 
E) government debt incurred today may not be paid off until after some current consumers are deceased.

Question 12

For a lender, an increase in the real interest rate

Accepted Answer

A) reduces current consumption and has an uncertain effect on future consumption. 
B) has an uncertain effect on both current and future consumption. 
C) definitely reduces current consumption and increases future consumption. 
D) definitely reduces current consumption and future consumption. 
E) has an uncertain effect on current consumption and increases future consumption. 
A) reduces current consumption and has an uncertain effect on future consumption. 
B) has an uncertain effect on both current and future consumption. 
C) definitely reduces current consumption and increases future consumption. 
D) definitely reduces current consumption and future consumption. 
E) has an uncertain effect on current consumption and increases future consumption.

Question 13

Aggregate consumption is

Accepted Answer

A) more variable than savings. 
B) more volatile than aggregate income. 
C) less variable than aggregate income. 
D) positively related to savings. 
E) negatively related to real GDP. 
A) more variable than savings. 
B) more volatile than aggregate income. 
C) less variable than aggregate income. 
D) positively related to savings. 
E) negatively related to real GDP.

Question 14

Intertemporal decisions involve economic decisions

Accepted Answer

A) that ignore concerns about the future. 
B) made within a given period of time. 
C) made in between two periods of time. 
D) that are made only once. 
E) involving tradeoffs across periods of time. 
A) that ignore concerns about the future. 
B) made within a given period of time. 
C) made in between two periods of time. 
D) that are made only once. 
E) involving tradeoffs across periods of time.

Question 15

Consumption smoothing refers to

Accepted Answer

A) the tendency of consumers to seek an income path over time that is smoother than consumption. 
B) balance savings with consumption over time. 
C) the tendency of all consumers to choose the same amount of current consumption. 
D) the tendency of consumers to seek a consumption path over time that is smoother than income. 
E) consumer's concerns about going heavily into debt. 
A) the tendency of consumers to seek an income path over time that is smoother than consumption. 
B) balance savings with consumption over time. 
C) the tendency of all consumers to choose the same amount of current consumption. 
D) the tendency of consumers to seek a consumption path over time that is smoother than income. 
E) consumer's concerns about going heavily into debt.

Question 16

A permanent increase in income leads to

Accepted Answer

A) a large increase in current consumption. 
B) a small increase in current consumption. 
C) a small increase in future consumption. 
D) a large decrease in future consumption. 
E) a small decrease in future consumption. 
A) a large increase in current consumption. 
B) a small increase in current consumption. 
C) a small increase in future consumption. 
D) a large decrease in future consumption. 
E) a small decrease in future consumption.

Question 17

An increase in second-period income results in

Accepted Answer

A) a decrease in first-period consumption, an increase in second-period consumption, and an increase in saving. 
B) an increase in first-period consumption, an increase in second-period consumption, and an increase in saving. 
C) a decrease in first-period consumption, a decrease in second-period consumption, and an increase in saving. 
D) an increase in first-period consumption, a decrease in second-period consumption, and an increase in saving. 
E) an increase in first-period consumption, an increase in second-period consumption, and a decrease in saving. 
A) a decrease in first-period consumption, an increase in second-period consumption, and an increase in saving. 
B) an increase in first-period consumption, an increase in second-period consumption, and an increase in saving. 
C) a decrease in first-period consumption, a decrease in second-period consumption, and an increase in saving. 
D) an increase in first-period consumption, a decrease in second-period consumption, and an increase in saving. 
E) an increase in first-period consumption, an increase in second-period consumption, and a decrease in saving.

Question 18

A key channel for interest rate effects on real activity will be through

Accepted Answer

A) consumption and savings. 
B) aggregate investment. 
C) permanent income. 
D) temporary income. 
E) aggregate consumption. 
A) consumption and savings. 
B) aggregate investment. 
C) permanent income. 
D) temporary income. 
E) aggregate consumption.

Question 19

The property of diminishing marginal rate of substitution follows from the property that the indifference curves are

Accepted Answer

A) bowed out from the origin. 
B) bowed in toward the origin. 
C) downward sloping. 
D) negatively sloped. 
E) upward sloping. 
A) bowed out from the origin. 
B) bowed in toward the origin. 
C) downward sloping. 
D) negatively sloped. 
E) upward sloping.

Question 20

In the case where current and future consumption are perfect complements, an increase in the real interest rate

Accepted Answer

A) involves only income effects. 
B) has ambiguous effects depending on whether the substitution or income effects dominate. 
C) involves a substitution effect only for lenders. 
D) is relevant only for borrowers. 
E) involves only substitution effects. 
A) involves only income effects. 
B) has ambiguous effects depending on whether the substitution or income effects dominate. 
C) involves a substitution effect only for lenders. 
D) is relevant only for borrowers. 
E) involves only substitution effects.

If consumers expect a tax cut to be temporary

The private supply of credit is an increasing function of the real interest rate if

A consumer is a lender if

A permanent decrease in taxes leads to

Distorting taxes can invalidate Ricardian equivalence because

Bonds are assumed to trade directly

The optimal consumption bundle is where

A one-unit decrease in current income, and a one-unit increase in lifetime wealth

When different consumers pay different amounts of taxes, Ricardian equivalence may fail because

Ricardian equivalence suggests that the government must pay off its debt by

An important reason why Ricardian equivalence may fail is if

For a lender, an increase in the real interest rate

Aggregate consumption is

Intertemporal decisions involve economic decisions

Consumption smoothing refers to

A permanent increase in income leads to

An increase in second-period income results in

A key channel for interest rate effects on real activity will be through

The property of diminishing marginal rate of substitution follows from the property that the indifference curves are

In the case where current and future consumption are perfect complements, an increase in the real interest rate

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: the Workleisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity Among Countries and Endogenous Growth

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model With Investment

Money, Banking, Prices, and Monetary Policy

Business Cycle Models With Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: a Deeper Look

Filters

Exam 9: A Two-Period Model: the Consumptionsavings Decision and Credit Markets

If consumers expect a tax cut to be temporary

The private supply of credit is an increasing function of the real interest rate if

A consumer is a lender if

A permanent decrease in taxes leads to

Distorting taxes can invalidate Ricardian equivalence because

Bonds are assumed to trade directly

The optimal consumption bundle is where

A one-unit decrease in current income, and a one-unit increase in lifetime wealth

When different consumers pay different amounts of taxes, Ricardian equivalence may fail because

Ricardian equivalence suggests that the government must pay off its debt by

An important reason why Ricardian equivalence may fail is if

For a lender, an increase in the real interest rate

Aggregate consumption is

Intertemporal decisions involve economic decisions

Consumption smoothing refers to

A permanent increase in income leads to

An increase in second-period income results in

A key channel for interest rate effects on real activity will be through

The property of diminishing marginal rate of substitution follows from the property that the indifference curves are

In the case where current and future consumption are perfect complements, an increase in the real interest rate

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: the Workleisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity Among Countries and Endogenous Growth

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model With Investment

Money, Banking, Prices, and Monetary Policy

Business Cycle Models With Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: a Deeper Look

Filters