Micro Quiz 5: Intertemporal Choices

You have $20,000 of current income and $45,000 of future income. The interest rate between the current and future period is 2 percent. What is the maximum amount you could consume in the future? Select one: 1. 65,400 2. 69,000 3. 20,400 4. 65,000

1. 65,400

If $100 today is worth $150 to you in the future, then you exhibit Select one: 1. A positive time preference 2. A negative time preference 3. A neutral time preference 4. A negative marginal rate of substitution

1. A positive time preference

Which statement is true? Select one: 1. An increase in the interest rate will always cause a reduction in current consumption. 2. An increase in the interest rate creates an income effect but no substitution effect. 3. An increase in the interest rate will sometimes cause a reduction in future consumption. 4. None of the above statements are true.

1. An increase in the interest rate will always cause a reduction in current consumption.

If the interest rate increases, it will cause you to Select one: 1. Save more of your income 2. Save less of your income 3. Be more time patient 4. Be more time impatient

1. Save more of your income

The horizontal intercept of the intertemporal budget constraint is referred to as Select one: 1. The present value of lifetime income 2. The current value of future income 3. The future value of lifetime income 4. The future value of present income

1. The present value of lifetime income

Suppose you receive Y1 of your income this period and Y2 of your income in the next period. If you can either borrow or lend at an interest rate r, what is the most you can consume in the future period? Select one: 1. Y1(1 + r) + Y2 2. Y2(1 + r) + Y1 3. Y1/(1 + r) + Y2 4. Y2/(1 + r) + Y1

1. Y1(1 + r) + Y2

If the interest rate is zero, then the intertemporal budget constraint Select one: 1. has a slope of -1. 2. has a slope of zero. 3. is irrelevant because no one will save at zero interest. 4. will be only a point at the income coordinates.

1. has a slope of -1.

If borrowing and lending is possible at a positive interest rate and if there is present and future income, then the intertemporal budget constraint Select one: 1. will be a straight line with a slope steeper than -1. 2. will be a kinked line with the kink being at the first-year income point. 3. will be a straight line with a slope of -1. 4. will be concave to the origin.

1. will be a straight line with a slope steeper than -1.

A decrease in the interest rate will Select one: 1. Produce an increase in current savings 2. Produce an increase in current consumption 3. Produce a decrease in current savings 4. Depend on the particular consumer's preferences

2. Produce an increase in current consumption

The graphical representation of consumer surplus that sellers seek to get from consumers is Select one: 1. The area under the demand curve above the horizontal axis. 2. The area under the demand curve above the price charged. 3. The rectangle of the price times the quantity. 4. The area under the demand curve from the horizontal intercept to the price.

2. The area under the demand curve above the price charged.

The golf club that charges a per hour fee and an annual membership fee is likely attempting to Select one: 1. take advantage of those who have a high discount rate. 2. take some of the golfing consumer surplus. 3. raise the marginal cost of a round of golf to reduce course congestion. 4. do all of the above.

2. take some of the golfing consumer surplus.

Suppose a bank will pay you a 10% interest rate on your deposits for 1 period. In this case you must sacrifice $10 of current consumption to finance Select one: 1. $9 of future consumption 2. $10 of future consumption 3. $11 of future consumption 4. $1 of future consumption

3. $11 of future consumption

You have $20,000 of current income and $45,000 of future income. The interest rate between the current and future periods is 2 percent. When you allocate consumption optimally between the two period, the marginal rate of time preference between the two periods is Select one: 1. -1.00 2. 0.80 3. -1.02 4. -1.80

3. -1.02

On a hot day Joe would pay $1 for his first can of soda. He would pay 60 cents for the second can and 50 cents for the third can. Which is true for Joe? Select one: 1. If the price is 50 cents per can, Joe will buy 3 cans and have a total consumer surplus of $2.10. 2. If the price is 50 cents per can, Joe will buy 3 cans and have a total consumer surplus of $1.60. 3. If the price is 50 cents per can, Joe will buy 3 cans and have a total consumer surplus of 60 cents. 4. If the price is 40 cents per can, Joe will buy 3 cans and have $1.20 of consumer surplus.

3. If the price is 50 cents per can, Joe will buy 3 cans and have a total consumer surplus of 60 cents.

Suppose you receive Y1 of your income this period and Y2 of your income next period. If you can either borrow or lend at an interest rate r, what is the most you can consume in the current period? Select one: 1. Y1(1 + r) + Y2 2. Y2(1 + r) + Y1 3. Y1/(1 + r) + Y2 4. Y2/(1 + r) + Y1

4. Y2/(1 + r) + Y1