Question 1

A one-period bond is a promise to repay

Accepted Answer

A)    units of goods in the second period. 
B)  r units of goods in the second period. 
C)  (1 + r) units of goods in the second period. 
D)  the original amount lent. 
A)    units of goods in the second period. 
B)  r units of goods in the second period. 
C)  (1 + r) units of goods in the second period. 
D)  the original amount lent.

Question 2

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the slope of the consumer's budget line is equal to

Accepted Answer

A)  r × we. 
B)  -   
C)  -   
D)  - (1 + r). 
A)  r × we. 
B)  -   
C)  -   
D)  - (1 + r).

Question 3

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the vertical (future consumption)intercept of the consumer's budget line is equal to

Accepted Answer

A)  we. 
B)  (1 + r)we. 
C)    
D)    
A)  we. 
B)  (1 + r)we. 
C)    
D)

Question 4

If government spending is held constant and Ricardian equivalence holds,

Accepted Answer

A)  an increase in the government budget deficit is always matched by a reduction in private savings. 
B)  an increase in government savings is always matched by an increase in the government budget deficit. 
C)  an increase in government savings is always matched by an equal increase in private savings. 
D)  an increase in government savings is always matched by an equal reduction in private savings. 
A)  an increase in the government budget deficit is always matched by a reduction in private savings. 
B)  an increase in government savings is always matched by an increase in the government budget deficit. 
C)  an increase in government savings is always matched by an equal increase in private savings. 
D)  an increase in government savings is always matched by an equal reduction in private savings.

Question 5

In the data,which of the following is most volatile?

Accepted Answer

A)  real GDP 
B)  consumption of durables 
C)  consumption of nondurables 
D)  consumption of services 
A)  real GDP 
B)  consumption of durables 
C)  consumption of nondurables 
D)  consumption of services

Question 6

A permanent increase in income leads to

Accepted Answer

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

Question 7

The government's present value budget constraint states that

Accepted Answer

A)  taxes must equal government spending in each period. 
B)  the present value of government spending must be equal to the present value of consumers' disposable incomes. 
C)  the present value of government spending must be equal to the present value of taxes. 
D)  the government may run deficits each and every year, as long as the deficits are sufficiently small. 
A)  taxes must equal government spending in each period. 
B)  the present value of government spending must be equal to the present value of consumers' disposable incomes. 
C)  the present value of government spending must be equal to the present value of taxes. 
D)  the government may run deficits each and every year, as long as the deficits are sufficiently small.

Question 8

Savings in our model are

Accepted Answer

A)  durable consumption. 
B)  non-durable consumption. 
C)  postponed consumption. 
D)  money. 
A)  durable consumption. 
B)  non-durable consumption. 
C)  postponed consumption. 
D)  money.

Question 9

If the interest rate increases,lifetime wealth (we)

Accepted Answer

A)  increases. 
B)  stays constant. 
C)  decreases. 
D)  changes in an ambiguous way. 
A)  increases. 
B)  stays constant. 
C)  decreases. 
D)  changes in an ambiguous way.

Question 10

In the basic two-period model,

Accepted Answer

A)  credit markets have frictions. 
B)  the government borrows at a lower interest rate than do consumers. 
C)  some consumers will always default on their debts. 
D)  consumers do not default on their debts. 
A)  credit markets have frictions. 
B)  the government borrows at a lower interest rate than do consumers. 
C)  some consumers will always default on their debts. 
D)  consumers do not default on their debts.

Question 11

A temporary decrease in taxes leads to

Accepted Answer

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

Question 12

An increase in second-period income results in

Accepted Answer

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

Question 13

With higher future taxes

Accepted Answer

A)  current consumption declines. 
B)  current consumption stays the same. 
C)  current consumption increases. 
D)  current consumption depends on other factors. 
A)  current consumption declines. 
B)  current consumption stays the same. 
C)  current consumption increases. 
D)  current consumption depends on other factors.

Question 14

For a competitive equilibrium in a two-period model,all of the following must be true except

Accepted Answer

A)  each consumer picks first- and second-period consumption given the real interest rate. 
B)  there must be an equal number of borrowers and lenders. 
C)  the government's present-value budget constraint holds. 
D)  the credit market clears. 
A)  each consumer picks first- and second-period consumption given the real interest rate. 
B)  there must be an equal number of borrowers and lenders. 
C)  the government's present-value budget constraint holds. 
D)  the credit market clears.

Question 15

Distorting taxes can invalidate Ricardian equivalence because

Accepted Answer

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

Question 16

The two primary explanations for the excess volatility of consumption are

Accepted Answer

A)  consumers' limited life spans and credit market imperfections. 
B)  credit market imperfections and changes in market prices. 
C)  changes in market prices and distorting taxes. 
D)  distorting taxes and consumers' limited life spans. 
A)  consumers' limited life spans and credit market imperfections. 
B)  credit market imperfections and changes in market prices. 
C)  changes in market prices and distorting taxes. 
D)  distorting taxes and consumers' limited life spans.

Question 17

An increase in the real interest rate is an example of a

Accepted Answer

A)  pure substitution effect. 
B)  substitution effect and a positive income effect. 
C)  substitution effect and a negative income effect. 
D)  substitution effect and an income effect whose sign depends on whether the consumer is initially a borrower or a lender. 
A)  pure substitution effect. 
B)  substitution effect and a positive income effect. 
C)  substitution effect and a negative income effect. 
D)  substitution effect and an income effect whose sign depends on whether the consumer is initially a borrower or a lender.

Question 18

Consumption smoothing refers to

Accepted Answer

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

Question 19

The simplest device to analyze dynamic decisions is a

Accepted Answer

A)  one-period model. 
B)  two-period model. 
C)  model that includes only the number of years of a typical consumer's lifetime. 
D)  continuous time model. 
A)  one-period model. 
B)  two-period model. 
C)  model that includes only the number of years of a typical consumer's lifetime. 
D)  continuous time model.

Question 20

We assume that the representative consumer's preferences exhibit the properties that

Accepted Answer

A)  they are convex and that more is always preferred to less. 
B)  more is always preferred to less and that each consumer has one strictly favorite period of time for consumption. 
C)  each consumer has one strictly favorite period of time for consumption and that current and future consumption are both normal goods. 
D)  current and future consumption are both normal goods and that the consumer likes diversity in his or her consumption bundle. 
A)  they are convex and that more is always preferred to less. 
B)  more is always preferred to less and that each consumer has one strictly favorite period of time for consumption. 
C)  each consumer has one strictly favorite period of time for consumption and that current and future consumption are both normal goods. 
D)  current and future consumption are both normal goods and that the consumer likes diversity in his or her consumption bundle.

A one-period bond is a promise to repay

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the slope of the consumer's budget line is equal to

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the vertical (future consumption)intercept of the consumer's budget line is equal to

If government spending is held constant and Ricardian equivalence holds,

In the data,which of the following is most volatile?

A permanent increase in income leads to

The government's present value budget constraint states that

Savings in our model are

If the interest rate increases,lifetime wealth (we)

In the basic two-period model,

A temporary decrease in taxes leads to

An increase in second-period income results in

With higher future taxes

For a competitive equilibrium in a two-period model,all of the following must be true except

Distorting taxes can invalidate Ricardian equivalence because

The two primary explanations for the excess volatility of consumption are

An increase in the real interest rate is an example of a

Consumption smoothing refers to

The simplest device to analyze dynamic decisions is a

We assume that the representative consumer's preferences exhibit the properties that

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: The Work-Leisure 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

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking

Inflation, the Phillips Curve, and Central Bank Commitment

Filters

Exam 9: A Two-Period Model: The Consumption-Savings Decision and Credit Markets

A one-period bond is a promise to repay

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the slope of the consumer's budget line is equal to

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the vertical (future consumption)intercept of the consumer's budget line is equal to

If government spending is held constant and Ricardian equivalence holds,

In the data,which of the following is most volatile?

A permanent increase in income leads to

The government's present value budget constraint states that

Savings in our model are

If the interest rate increases,lifetime wealth (we)

In the basic two-period model,

A temporary decrease in taxes leads to

An increase in second-period income results in

With higher future taxes

For a competitive equilibrium in a two-period model,all of the following must be true except

Distorting taxes can invalidate Ricardian equivalence because

The two primary explanations for the excess volatility of consumption are

An increase in the real interest rate is an example of a

Consumption smoothing refers to

The simplest device to analyze dynamic decisions is a

We assume that the representative consumer's preferences exhibit the properties that

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: The Work-Leisure 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

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking

Inflation, the Phillips Curve, and Central Bank Commitment

Filters