303 Exam

Adam's marginal rate of substitution between c2 and c 1 is 1.2. Which of the following statement is true? A. An increase of future consumption by 1 unit increases Adam's happiness by 1.2 utils. B. Adam is willing to buy one unit of c2 with 1.2 units of c1. C. If you take away one unit of c1 from Adam and replace it with 1.2 units of c2, Adam's happiness does not change. D. Adam is willing to sell one unit of c1 for 1.2 units of c2.

B

As the real interest rate falls, firms desire to A. buy more new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping. B. buy more new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping. C. buy less new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping. D. buy less new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping.

B

As the real interest rate falls, firms desire to: A. Buy more new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping B. Buy more new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping C. Buy less new equipment and buildings. This response helps explain why the demand for loanable funds is upward sloping. D. Buy less new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping.

B

Beth has a life-time utility over consumption given by .At the bundle (1000, 1000) she is willing to trade A. 1 unit of c1for 1 unit of c2. B. less than 1 unit of c1for 1 unit of c2. C. more than 1 unit of c1for 1 unit of c2. D. any unit of c1for 1 unit of c2.

B

Dan's income now is $83,000 and his income in the future will be $100,000. The real interest rate is 5%. Which of the following consumption bundle is feasible for Dan? A. (95,000, 90,000) B. (90,000, 92,000) C. (88,000, 95,000) D. (92,000, 92,000)

B

During a period of year the consumer price index increased from 150 to 159 and the purchasing power of a person's bank account increased by 3.5%. For that year, A .the inflation rate was 3.5%. B. the nominal interest rate was 9.5%. C. the inflation rate was 9.5%. D. the nominal interest rate was 6%.

B

Edward is 60 years old. He had accumulated a sizable retirement fund invested in the stock market. Michael is 25 year old. He just started to accumulate his retirement fund. When returns on the stock market increases which of the following is a correct statement? A. Both Edward and Michael are affected through substitution effect only. B. Edward is affected mainly through income effect while Michael is affected mainly through substitution effect. C. Both Edward and Michael are affected through income effect only. D. Edward is affected mainly through substitution effect while Michael is affected mainly through income effect

B

For a lender a decrease in the real interest rate A. definitely increases current consumption and decreases future consumption. B. has an uncertain effect on current consumption and decreases future consumption. C. has an uncertain effect on both current and future consumption. D. increases current consumption and has an uncertain effect on future consumption.

B

If current income increases as much as future income decreases and real interest rate is positive A. current consumption stays the same. B. current consumption increases. C. We do not know. D. current consumption decreases.

B

Suppose that the real interest rate is r. To get one unit of real income next period how much does a household has to save today? A. 1 B. 1/(1+r) C. r D. 1+r

B

We assume that the representative consumer's preferences exhibits all of the following properties, EXCEPT which one? A. The consumer likes diversity in his or her consumption bundle. B. Current and future consumption must be the same. C. More is always preferred to less. D. Marginal utility from consumption falls as consumption increases.

B

Which of the following is a correct expression for Fisher equation, where i is the nominal interest rate, r the real interest rate, and π the inflation rate? A. r = i + π B. i = r - π C. π = r + i D. i = r + π

B

Dick became a partner of a consulting firm. He bought the lifetime membership of a country club. Dick's behavior can be explained by which of the following? A. A temporary increase of current income. B. A temporary increase of future income. C. A permanent increase of income. D. A permanent decrease of income.

C

If government runs fiscal deficit in a closed economy public saving is negative and national saving is more than private saving. public saving is positive and national saving is less than private saving. public saving is negative and national saving is less than private saving. public saving is positive and national saving is more than private saving.

C

In a closed economy, if Y is 8,000, T is 1,000, G is 2,000, and C is 5,000, then A. the government has a budget surplus and investment is 1,000. B. the government has a budget surplus and investment is 2,000. C. the government has a budget deficit and investment is 1,000. D. the government has a budget deficit and investment is 2,000.

C

Jason was laid off recently. He expects to find a new job in the future. As for now, he postponed the plan of trading in his old Toyota for a new one. He also applied for a few credit cards. According to PIH, Jason's behavior can be explained by which of the following? A. Decrease of current income B. Increase of current income C. Decrease of Future Income D. Increase of future Income

C

Jason was laid off recently. He expects to find a new job in the future. As for now, he postponed the plan of trading in his old Toyota for a new one. He also applied for a few credit cards. According to PIH, Jason's behavior can be explained by which of the following? A. An increase of current income. B. A decrease of future income. C. A decrease of current income. D. An increase of future income.

C

Let r denote the real interest rate. The horizontal axis is consumption in the future and vertical axis is consumption now. Which of the following statements about intertemporal budget line is correct? A. The vertical intercept is the present value of income and the slope (absolute value) is 1+r. B. The vertical intercept is the income in period 2 and the slope (absolute value) is 1/(1+r). C. The vertical intercept is the present value of income and the slope (absolute value) is 1/(1+r). D. The vertical intercept is the income in period 1 and the slope (absolute value) is 1+r.

C

This year, Carl received $100,000 from his great aunt who passed away in January, while Tim got a raise of $5,000 due to his excellent sales record last year. A. Carl's increase of income is temporary while Tim's is permanent. We expect a higher MPC out of Carl's additional income. B. Carl's increase of income is permanent while Tim's is temporary. We expect a higher MPC out of Carl's additional income. C. Carl's increase of income is temporary while Tim's is permanent. We expect a higher MPC out of Tim's additional income. D. Carl's increase of income is permanent while Tim's is temporary. We expect a higher MPC out of Tim's additional income.

C

When the real interest rate rises from 4% to 7% A. Consumption now is relatively cheaper as opportunity cost of consuming now rises; consumption in the future is relatively more expensive as a lesser amount can be saved today for one unit of future consumption B. Consumption now is relatively cheaper as opportunity cost of consuming now falls; consumption in the future is relatively cheaper as a lesser amount can be saved today for one unit of future consumption C. Consumption now is relatively more expensive as opportunity cost of consuming now rises; consumption in the future is relatively cheaper as a lesser amount can be saved today for one unity of future consumption D. Consumption now is relatively more expensive as opportunity cost of consuming now rises consumption in the future is relatively more expensive as more is received if one saves

C

When the real interest rate rises from 4% to 7% A. consumption now is relatively cheaper as opportunity cost of consuming now rises; consumption in the future is relatively more expensive as a lesser amount can be saved today for one unit of future consumption. B. consumption now is relatively cheaper as opportunity cost of consuming now falls; consumption in the future is relatively cheaper as a lesser amount can be saved today for one unit of future consumption. C. consumption now is relatively more expensive as opportunity cost of consuming now rises; consumption in the future is relatively cheaper as a lesser amount can be saved today for one unit of future consumption. D. consumption now is relatively more expensive as opportunity cost of consuming now rises; consumption in the future is relatively more expensive as more is received if one saves.

C

Which of the assumptions we have on utility function makes households in our model smooth consumption? A. Households prefer variety. B. Households are impatient. C. Households have diminishing marginal utility. D. Households always prefer more than less goods.

C

Which of the following statements is correct, when real interest rate increases? A. A saver experiences a negative income effect. B. The present value of income increases. C. A household with less income now and more income in the future will borrow less for sure. D. Consumption in the future is relatively more expensive; a household consumes less in the future and more now.

C

Suppose that the real interest rate is 2% and inflation rate is 3%. Mr. Smith saved $1,000. Next year, A. The dollar amount of his saving will increase by 5%, the purchase power of those money will increase by 2% B. The dollar amount of his saving will increase by 2%, the purchase power of that money will increase by -1% (decrease by 1%) C. The dollar amount of his saving will increase by 2%, the purchase power of that money will increase by 3% D. The dollar amount of his saving will increase by -1%, the purchase power of that money will increase by 2%

???

A household is a borrower if A. the optimum current consumption is greater than current income. B. the consumer's indifference curves are relatively steep. C. future income is greater than current income. D. the optimum current consumption is less than current income

A

Amy's lifetime utility is ln c 1 + 0.95 ln c 2. In a consumption bundle, the first number indicates the amount of consumption today and the second the amount of consumption tomorrow. Which of the following statements is true? Amy prefers bundle (92, 92) over bundle (88, 95) Amy prefers bundle (95, 88) over bundle (92, 92) Amy prefers bundle (88, 95) over bundle (95, 88) Amy prefers bundle (88, 95) over bundle (92, 92)

A

Both Tim and Rob work for the same insurance company for the same pay. This year Tim landed a big contract and got a hefty bonus. Rob took a two-month unpaid leave to take care of his sick mother. Which of the following is a correct description of their consumption and saving behavior? A. Tim will increase his current consumption and saving. B. Rob will increase his current consumption and saving. C. Tim will increase his current consumption but reduce saving. D. Rob will reduce his current consumption and save more.

A

In a crude oil producing country a recent surge of international oil price increases the income of average households. On the loanable funds market A. the supply curve shifts to the right and the real interest rate decreases. B. the demand curve shifts to the right and the real interest rate increases. C. the demand curve shifts to the left and the real interest rate decreases. D. the supply curve shifts to the left and the real interest rate increases.

A

Joe has a bigger subjective discount factor than Arthur. For example, Joe's subjective discount factor is 0.95 while Arthur's is 0.9. Which of the following is NOT correct? A. If Joe and Arthur have the same income and interest rate Joe will consume more now than Arthur. B. Joe values future more than Arthur does. C. Joe is more patient than Arthur. D. If Joe and Arthur have the same income and interest rate Joe will save more than Arthur.

A

Mary won a $100,000 lottery. According to the Permanent Income Hypothesis (PIH), Mary will do which of the following? A. Spend a small amount of the money right away and save the rest for future consumption. B. Spend all the money right away. C. Don't spend any money at all; save all of it. D. Spend a large chunk of the money right away and only save a little bit for future consumption.

A

Suppose that the real interest rate is 2% and inflation rate is 3%. Mr. Smith saved $1,000. Next year, A. the dollar amount of his saving will increase by 5%, the purchase power of those money will increase by 2% . B. the dollar amount of his saving will increase by 2%, the purchase power of those money will increase by -1% (decrease by 1%). C. the dollar amount of his saving will increase by 2%, the purchase power of those money will increase by 3% . D. the dollar amount of his saving will increase by -1%, the purchase power of those money will increase by 2%.

A

The marginal propensity to consume measures how much does current consumption change when A. current income changes. B. interest rate changes. C. permanent income changes. D. future income changes.

A

What would happen on the market for loanable funds if the government were to increase the tax on interest income? A. The interest rate would rise. B. The interest rate would be unaffected. C. The interest rate would fall. D. The effect on the interest rate is uncertain.

A

When the nominal interest rate is positive but less than the inflation rate A. The dollar amount of saving increases next period, but the purchase power of saving decreases. B. both the dollar amount of saving and the purchase power of saving decrease next period. C. both the dollar amount of saving and the purchase power of saving increase next period. D. The dollar amount of saving decreases next period, but the purchase power of saving increases

A

If the marginal rate of substitution between c 2 and c 1 is less than the inverse of (1+r), A. marginal benefit of increasing c2 a bit is more than its marginal cost and a bit more saving improves happiness. B. Marginal benefit of increasing c2 a bit is more than its marginal cost and a bit less saving improves happiness. C. Marginal benefit of increasing c2 a bit is less than its marginal cost and a bit less saving improves happiness. D. Marginal benefit of increasing c2 a bit is less than its marginal cost and a bit more saving improves happiness.

D

Ken gambles on Bitcoin and loses a lot of money. A. He works less due to an income effect and saves more due to a substitution effect. B. He works less due to a substitution effect and saves more due to a substitution effect. C. He works more due a substitution effect and saves less due a income effect. D. He works more due to an income effect and saves less due to an income effect.

D

The income point is the consumption bundle where A. current consumption equals current income less current government expenses. B. the real interest rate equals zero. C. consumption in both periods are the same. D. no saving occurs.

D

Tom, a senior student in college, just accepted an offer from the Citi Group in New York city. He will start working in 4 months. Tom takes up a loan to buy a new car. According to PIH, Tom's behavior can be explained by which of the following? A. Decrease of current income B. Increase of current income C. Decrease of Future Income D. Increase of future Income

D

Tom, a senior student in college, just accepted an offer from the Citi Group in New York city. He will start working in 4 months. Tom takes up a loan to buy a new car. According to PIH, Tom's behavior can be explained by which of the following? A. A decrease of current income. B. An increase of current income. C. A decrease of future income. D. An increase of future income

D

1. Jessie has a square root utility function with a subjective discount factor of 0.93. Her current consumption bundle is (c 1=108, c 2=94). Which of the following is NOT correct? Jessie derives 19.41 utils from this bundle. If one unit of c 1 is taken away from Jessie, she loses 0.048 utils approximately. One more unit of consumption brings Jessie the same amount of additional happiness. Jessie is willing to trade 0.997 unit of c 1 for one unit of c 2.

C

1. When the real interest rate falls, a. the opportunity cost of consuming now is smaller. b. consumption in the future is more expensive. c. all of the statement is correct. d. the present value of income is larger.

C

A consumer is a lender if A. current disposable income is greater than future disposable income. B. the consumer's indifference curves are relatively flat. C. optimum current consumption is less than current disposable income. D. optimum current consumption is greater than current disposable income.

C

1. Jake has a log utility and discounts future utility by a factor of 0.9. His consumption now is 95 units and consumption in the future is 88 units. Which of the following is correct? A. He should save a bit more if the real interest rate is 4%. B. He should save a bit more if the real interest rate is 2.5%. C. He should save a bit less if the real interest rate is 4% D. He should save a bit less if the real interest rate is 5%

D

A decrease in the real interest rate will lead to a substitution effect described by which of the following statements? A. Consumption now is relatively more expensive; households consume more now and less in the future. B. Consumption in the future is relatively more expensive; households consume less now and more in the future. C. Consumption now is relatively more expensive; households consume less now and more in the future. D. Consumption in the future is relatively more expensive; households consume more now and less in the future.

D

An increase in second-period income results in 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 a decrease 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.

D

An increase of fiscal deficit will A. shift the supply of funds to the private sector to the right. If nothing else happens, real interest rate goes down and private investment is increased. B. shift the demand of funds from the private sector to the left. If nothing else happens, real interest rate goes up and private investment is reduced. C. shift the demand of funds from the private sector to the right. If nothing else happens, real interest rate goes down and private investment is increased. D. shift the supply of funds to the private sector to the left. If nothing else happens, real interest rate goes up and private investment is reduced.

D