ECN 313 Midterm 2
I R^ff is the federal funds rate, R is the market interest rate, and fbar is the financial friction, what is the equation for the market interest rate?
R = R^ff + fbar
Prior to the recent financial crisis, the bulk of the Fed's assets on its balance sheet were ________ and its liabilities were ________. - U.S. Treasury bills; currency - reserves; vault cash - loans; Treasury accounts - currency; reserves - stocks; foreign currency
U.S. Treasury bills; currency
Which of the following represents the AD curve with a financial friction?
Y_t = a - bf - bm (pi_t - pi_bar) Y tilde a, b, f, m ALL bar
Refer to the following figure when answering the following questions: Figure 12.12 Money Market. Starting at any equilibrium in Figure 12.12, if individuals want to hold more wealth in savings, the money market would move from point: - A to C. - B to D. - Not enough information is given. - B to A. - B to C.
B to D. *This is a demand side question so money supply is unaffected. If individuals want to hold more wealth in savings, they will demand less money, therefore shifting the MD curve down. Since MS is unaffected, we simply move down from point B to D.
Which of the following equations, discussed in the text, can be used to predict the federal funds rate?
i_t = rbar + pi_t + mbar (pi_t - pibar)
What did the Fed chairman tell a congressional panel in late September 2008? - "A recession is when your neighbor loses his job; a depression is when you lose yours." - "Inflation is always and everywhere a monetary phenomenon." - "In the long run we are all dead." - "We do not believe that more fiscal stimulus will improve economic performance." - "If we don't do this [the Troubled Asset Relief Program], we may not have an economy on Monday."
"If we don't do this [the Troubled Asset Relief Program], we may not have an economy on Monday."
The March 20, 2013, Federal Open Market Committee statement asserts: "To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time . . . at least as long as the unemployment rate remains above 6-1/2 percent . . . and longer-term inflation expectations continue to be well anchored." Your parents have taken interest in your fascinating Macroeconomics course and ask you to interpret this quote. Which of the following do you tell them? - "The Fed is trying to appease labor unions." - "The Fed is not worried about inflation but is concerned about the real economy." - "The Fed believes that labor markets are recovering quickly." - "The economy has recovered, and it is business as usual." - "The Fed is worried about deflation."
"The Fed is not worried about inflation but is concerned about the real economy."
Suppose Xbar = $75000, b = 1 and R = 0.05. Assuming logarithmic utility, what is consumption in the future? - $39,375.00 - $75,000.00 - $35,714.29 - Not enough information is given. - $37,500.00
$39,375.00 Solved by: c future = 1/2 (1+R) Xbar c future = 1/2 (1 + 0.05) 75,000
If we use a logarithmic utility function, the marginal utility of consumption is: - equal to ac ^a-1 - (1/c). - equal to c ^a - one. - equal to c.
(1/c).
Euler's Formula:
(c future / c today) = B (1+R)
If the simple Taylor rule models the "ideal" federal funds rate, the ________ displayed a monetary policy that was too loose. - 1980s - 1990s - 1970s - 2000s - 1960s
1970s
If the current rate of inflation is 4 percent, using the values rbar = 2%, pibar = 2%, mbar = 1/2% suggested by Professor Taylor, the monetary policy rule predicts a nominal interest rate of ________ percent. -4.5 - 7 - 4 - 3
7 *Solved by: i = rbar + pi_t + mbar (pi_t - pibar) i = 2% + 4% + 1/2% (4% - 2%) **pi_t = current rate of inflation
When an economy is in a deflationary spiral, and nominal interest rates are close to zero, it may be necessary: - for the Fed to buy financial securities. - to use fiscal stimulus. - for the Fed to print money. - None of these answers is correct. - All of these answers are correct.
All of these answers are correct.
Refer to the following figure when answering the following questions: Figure 12.12. Starting at any equilibrium in Figure 12.12, if the Fed tightens money, the money market would move from point: - Not enough information is given. - A to D. - B to D. - C to A. - B to C.
B to C * If the Fed tightens money, they are reducing the money supply. Therefore, money supplied shifts left, while money demanded stays constant.
________ encourage banks to ________, which ________. - Lower returns on assets; hold more cash; increases the "lemon" problem - Increased capital requirements; take more risk; leads to future bank bailouts - Increased leverage ratios; take less risk; strengthens the banking industry - Loans; increase lending; lowers market liquidity - Bailouts; take more risk; worsens the moral hazard problem
Bailouts; take more risk; worsens the moral hazard problem
________ reduced loans despite the Fed's attempts to get liquidity flowing in financial markets after 2008. - Higher federal funds rates - Record real estate foreclosures - Lessening regulatory control over banks - Low real interest rates - Commercial banks' reluctance to take on more risk
Commercial banks' reluctance to take on more risk
The European debt crisis hit all of the following countries very hard except: - Italy. - Ireland. - Germany. - Spain. - Greece.
Germany
The quote "When banking stops, credit stops, and when credit stops, trade stops, and when trade stops—well, the city of Chicago had only eight days of chlorine on hand for its water supply... The entire modern world is premised on the ability to buy now and pay later" is credited to: - Michael Lewis. - Frank Partnoy. - Henry Paulson. - Fed chairman Ben Bernanke. - The Wall Street Journal.
Michael Lewis
The reputations of ________, ________, and ________ have convinced observers that the Fed is committed to low and stable inflation. - Paul Volcker; Alan Greenspan; Janet Yellen - George H. W. Bush; Bill Clinton; George W. Bush - David Ricardo; John Stuart Mill; Alfred Marshall - John Taylor; Milton Friedman; Karl Marx - Ronald Reagan; Alan Greenspan; Janet Yellen
Paul Volcker; Alan Greenspan; Janet Yellen
Which of the following represents the consumer's lifetime utility?
U = u (c today) + B u (c future)
The term structure of interest rates shows the relationship between: - U.S. Treasury rates and municipal bond yields. - corporate bonds and the federal funds rate. - mortgage rates and LIBOR. - U.S. Treasury bills with different maturities. - high and low quality corporate bonds.
U.S. Treasury bills with different maturities.
A constraint to complicated macroeconomic models has been: - that agents are not rational. - that firms do not maximize profits. - an insufficient understanding of statistics. - a lack of computing power. - that economists have run out of ideas.
a lack of computing power.
Deflation usually arises due to ________. This in turn ________ interest rate, which ________. - an exchange rate depreciation; lowers the real; makes imports more expensive - loose fiscal policy; reduces the market; causes hyperinflation - oil price declines; increases the mortgage; slows housing price growth - tight monetary policy; pushes up the nominal; always leads to a recession - a recession; raises the real; deepens the recession
a recession; raises the real; deepens the recession
Assuming the simple Taylor rule for dictating the federal funds rate, when the actual federal funds rate deviates from the suggested rate, it can be explained by: - poorly informed monetary policy. - a richer version of the Taylor rule. - discretionary fiscal policy. - bad monetary policy. - poorly informed fiscal policy.
a richer version of the Taylor rule.
The following figure shows the BAA corporate and 10-year Treasury bond yields. The 10-year bond yield is considered ________, while the BAA bond yield represents ________. - a risk-free interest rate; a relatively risky interest rate - the federal funds rate; the financial friction - the saving rate; the lending rate - inflation; the M1 money growth rate - the financial friction; the prime lending rate
a risk-free interest rate; a relatively risky interest rate
A change in which of the following parameters shifts the AD curve: y_t = abar- bmbar (pi_t - pibar)? - abar - mbar - pi_t - bbar - None of these answers is correct.
abar
If mbar is relatively high, monetary policy is relatively ________ and the AD curve is ________. - permissive; relatively steep - aggressive; relatively flat - aggressive; relatively steep - permissive; vertical - permissive; relatively flat
aggressive; relatively flat *mbar governs how aggressively monetary policy responds to inflation **mbar > 1 = elastic
Under rational expectations, people use ________ to make their best forecasts of the coming rate of inflation. - all past rates of inflation - all the information at their disposal - only the Fed's inflation target - the unemployment rate - announcements by the Fed
all the information at their disposal
An implication of sticky inflation is that, through monetary policy changes, the Federal Reserve (the Fed): - has no impact on the unemployment rate. - can alter the real interest rate in the short run. - has no impact on inflation. - has no impact on the real interest rate. - can alter the real interest rate in the long run.
can alter the real interest rate in the short run.
With adaptive expectations, the Phillips curve can be written as:
change in pi_t = v(Ybar_t)
The problem the household must solve is: - satisfying the intertemporal budget constraint by finding a good source of income. - making sure the household is saving at least 10 percent of its income. - choosing lifetime consumption that satisfies the intertemporal budget constraint. - choosing period consumption to satisfy the concurrent budget constraint. - choosing consumption to ensure some income is left over for future generations.
choosing lifetime consumption that satisfies the intertemporal budget constraint
The B in the lifetime utility function represents: - consumer patience. - any number greater than one. - the level of uncertainty. - consumption. - life expectancy.
consumer patience. *the amount of future discount, discount factor
The consumer chooses his or her ________ to maximize his or her ________. - consumption; income - wealth; profits - income; consumption - interest rate; wealth - consumption; utility
consumption; utility
Consider two time periods: t and k. Which of the following would represent the "future's" budget constraint?
ct = yt + (1+R) ft *all t time period derived from: c future = y future + (1 + R) f future
Consider two time periods: t and k. Which of the following would represent "today's" budget constraint?
ct = yt - (fk - ft) derived from: c today + (f future - f today) = y today c today = y today - f(future - f today)
The intertemporal budget constraint is written as:
ctoday + (cfuture/1+R) = ftoday + ytoday + (future/1+R)
Refer to the following figure when answering the following questions: Figure 12.2. IS-MP Curve. If housing prices drop sharply, there is a loss in consumer and investor confidence and the economy moves from point ________. To prevent a ________, the Fed ________, and the economy moves from point ________. - c to b; bubble; raises interest rates; b to c - d to c; recession; lowers interest rates; c to b - a to d; recession; lowers interest rates; d to b - Not enough information is given. - a to d; recession; lowers interest rates; d to c
d to c; recession; lowers interest rates; c to b *Drop in housing prices decreases wealth and consumption, which acts like a negative demand shock (abar < 0). The IS curve shifts in, moving from point d to c. The FR responds by lowering the R^ff, shifting the MP curve down, moving from point c to b and returning the economy to its long-run equilibrium.
Refer to the following figure when answering the following questions: Figure 12.2 IS-MP Curve. If the Fed lowers interest rates and there are no aggregate demand shocks, the economy moves from point ________ to ________. - e; d - Not enough information is given. - e; b - d; c - Correct! d; a
d; a *Since the Fed is LOWERING interest rates, the MP curve shifts down. Since there are no aggregate demand shocks, there is no IS curve shift, we simply move down the curve to the new interest rate represented on MPb.
Refer to the following figure when answering the following questions: Figure 14.2. Starting from the long-run equilibrium, the burst of the housing bubble and the appropriate Fed response, WITHOUT a financial friction, can be shown as a movement from point ________ to point ________, and the economy is in ________. - b; a; an expansion - d; b; its long-run equilibrium - a; d; a recession - c; e; its long-run equilibrium - a; d; an expansion
d; b; its long-run equilibrium *Drop in housing prices decreases wealth and consumption, which acts like a negative demand shock (abar < 0). The IS curve shifts in, moving from point d to c. The FR responds by lowering the R^ff, shifting the MP curve down, moving from point c to b and returning the economy to its long-run equilibrium.
The utility function is constructed in such a way that consumption exhibits: - a single period level of utility. - diminishing utility. - diminishing marginal utility. - total satisfaction. - total lifetime income.
diminishing marginal utility.
During the ________, the actual federal funds rate was substantially lower than the rate suggested by the simple Taylor rule. - None of these answers is correct. - early 1960s - early 1990s - early to mid-1980s - late 1990s
early 1990s
Which of the following financial reforms were suggested by the Squam Lake Group? - increase leverage ratios - allow bonuses to be paid out for only short-term investments - enhance capital requirements - allow banks to choose the amount of risk - allow a bank to choose its own regulator
enhance capital requirements
Once a ________ is chosen, the main tool the Federal Reserve uses to change the money supply is ________. - federal funds rate; changing the discount rate - discount rate; borrowing money from the federal government - federal funds rate; open-market operations - number of dollars in circulation; changing the reserve rate - tax rate; changing the exchange rate
federal funds rate; open-market operations
In standard circumstances a firm ________ when its ________. In financial markets this approach did not work following the ________. - outsources its labor; net revenues are negative; purchase of Merrill Lynch by the Bank of America - increases its risky holdings; revenues fall; volatility of exchange rates in Japan - sells its assets at fire-sale prices; profits are negative; AIG debacle - files for bankruptcy; liabilities exceed its assets; collapse of Lehman Brothers - borrows liquidity from the Fed; leverage ratio rises above 75; passage of the TARP legislation
files for bankruptcy; liabilities exceed its assets; collapse of Lehman Brothers
In the intertemporal budget constraint, wealth is equal to: - financial wealth. - lifetime income. - financial plus "human" wealth. - savings held in stocks and bonds. - the overall stock of assets held by future generations.
financial plus "human" wealth. *total wealth
Refer to the following figure when answering the following questions: Figure 13.1. AD Curve. Holding inflation constant, if the interest rate increases, the economy would move from point e to point: - a. - d. - g. - c. - b.
g *A rise in the interest rate would decrease household and firm investment. Since borrowing is more expensive, consumers will demand less so the AD curve shifts in. Inflation is constant, so we move laterally to point g.
The left-hand side of the Euler equation represents the: - total lifetime consumption, in dollars. - growth rate of income. - lifetime utility function. - growth rate of consumption.
growth rate of consumption
If nominal interest rates are high, you: - hold all your money in a different currency. - hold less savings and more cash. - hold less cash and more savings. - hold only cash. - never have any cash in your checking account.
hold less cash and more savings. *If the interest rate are high, it makes more sense to store money in banks and earn interest, so individuals will hold less cash.
Which of the following is the mission of the Federal Reserve Bank? i. Preserve price stability ii. Foster stable fiscal policy iii. Ensure taxes are fair - i only - i and ii - iii only - i and iii ii only
i only i. Preserve price stability
Which of the following is the mission of the Federal Reserve Bank? i. Preserve price stability ii. Foster economic growth and employment iii. Promote a stable financial system - ii only - i only - iii only - i, ii, and iii - i and ii
i, ii, and iii i. Preserve price stability ii. Foster economic growth and employment iii. Promote a stable financial system
Which of the following contributed to high levels of inflation in the 1970s? i. A Soviet invasion of Afghanistan ii. Loose monetary policy iii. A productivity slowdown - i only - ii only - iii only - ii and iii - i and iii
ii and iii ii. Loose monetary policy iii. A productivity slowdown
An increase in the interest rate by the Federal Reserve will affect only real interest rates because: - prices are flexible in the short and long runs. - we are in the long run. - of the quantity theory of money. - inflation is sticky in the short run. - contracts apply only in the very short run.
inflation is sticky in the short run.
According to the Phillips curve, if the: - inflation rate is rising, the economy is in recession. - None of these answers is correct. - inflation rate is falling, the economy is booming. - inflation rate is rising, the economy is booming. - unemployment rate is falling, the economy is booming.
inflation rate is rising, the economy is booming.
According to the Phillips curve, if current output is above potential output: - inflation is constant. - inflation rises. - unemployment falls. - inflation falls. - tax rates rise.
inflation rises.
In most advanced economies, central banks target ________ to conduct monetary policy. - government debt - interest rates - the money supply - tax rates - exchange rates
interest rates
When inflation is negative it: - has no effect on the unemployment rate. - increases the positive output gap. - is called deflation - raises the demand for investment. - increases the growth of money.
is called deflation
The financial friction: - is lower in uncertain economic situations. - is equal to zero when the economy is in its long-run equilibrium. - is negative in Japan. - lowers the borrowing rate below the nominal federal funds rate. - is equal to the rate of inflation.
is equal to zero when the economy is in its long-run equilibrium.
The Taylor rule predicted the federal funds rate (in the text) was derived from which of the following equations?
it = 1% + 1.5pit + 0.5yt
The Fisher equation is given by:
it = Rt + pit Rt = it - pit
One of the remarkable things about the 2001 recession was the: - deflation. - jobless recovery. - impact of Hurricane Katrina on it. - rapid return to potential output. - fact that unemployment fell.
jobless recovery.
In a weakening economy, you might expect producers to: - lower prices to increase quantity demand for their output. - raise wages to hire more productive workers. - increase prices to increase quantity demand for their output. - lower prices to reduce quantity demand for their output. - lower wages to increase quantity demand for their output.
lower prices to increase quantity demand for their output.
In the IS/MP framework, when the Fed ________ the federal funds rate in the aftermath of the decline in housing prices, the ________ caused a(n) ________ in the real interest rate. - held constant; Okun effect; decline - raised; higher inflation rate; fall - manipulated; Fisher effect; increase - raised; unemployment rate; fall - lowered; financial friction; increase
lowered; financial friction; increase
When a central bank targets interest rates, it adopts a policy to adjust ________ to accommodate ________. - money supply; money demand shocks - money supply; tax changes - money demand; money supply shocks - interest rates; money supply - money demand; government debt
money supply; money demand shocks
In the aftermath of the recent financial crisis, the Fed's assets on its balance sheet grew to include which of the following? - bank reserves - term auction credit - mortgage-backed securities - liabilities - treasury accounts
mortgage backed securities
In the aftermath of the financial crisis that began in 2008, the Fed's assets grew primarily as: - reserves. - mortgage-backed securities and "other." - currency and loans. - holdings of foreign currency. - U.S. Treasury bills.
mortgage-backed securities and "other."
In the AS/AD framework, the financial friction appears as a: - negative demand shock. - negative supply shock. - The financial friction is only present in the IS/MP model. - positive supply shock. - change in the long-run real interest rate.
negative demand shock.
The model used to explain consumption is called the ________ consumption model. - neoclassical - Stone-Geary - classical - Keynesian - Solow
neoclassical
In the simple ________ model of consumption, we consider a(n) ________ period lifetime. - Keynesian; one - Marxian; one - neoclassical; two - Stone-Geary; infinite - constant rate of risk aversion; T
neoclassical; two
If the central bank reduces the money supply, the: - nominal interest rate falls and individuals hold no money. - unemployment rate rises and individuals hold less money. - inflation rate rises and individuals hold more money. - nominal interest rate rises and individuals hold less money. - nominal interest rate rises and individuals hold more money.
nominal interest rate rises and individuals hold less money. *If the interest rate rises, it makes more sense to store money in banks and earn interest, so individuals will hold less money.
If mbar is close to zero, monetary policy is relatively ________ and the AD curve is ________. - permissive; relatively steep - permissive; vertical - aggressive; relatively flat - aggressive; relatively steep - permissive; relatively flat
permissive; relatively steep *mbar governs how aggressively monetary policy responds to inflation **mbar < 1 = inelastic
A change in which of the following parameters would cause a movement along the AD curve? y_t = abar- bmbar (pi_t - pibar)? - pibar - mbar - pi_t - bbar - None of these answers is correct.
pi_t
In the text, inflation is given by the equation ________, where P_t is the current price level and P_t+1 is the future price level.
pi_t = (P_t+1 - P_t) / P_t *Percentage change in the price level
Refer to the following figure when answering the following questions: Figure 12.2 IS-MP Curve. If the Fed raises interest rates and there are no aggregate demand shocks, the economy moves from: - point b to a - point b to c - point c to d - Not enough information is given. - point b to d
point b to c *Since the Fed is RAISING interest rates, the MP curve shifts up. Since there are no aggregate demand shocks, there is no IS curve shift, we simply move up the curve to the new interest rate represented on MPa.
P/E ratio stands for ________ ratio. - price-earnings - price-expenditure - physical education - stock index-GDP - home price-easing
price-earnings
In the Phillips curve, if mbar is large, then: - price-setting behavior is completely insensitive to short-run fluctuations. - Not enough information is given. - inflation is not very sensitive to short-run fluctuations. - price-setting behavior is very insensitive to short-run fluctuations. - price-setting behavior is very sensitive to short-run fluctuations.
price-setting behavior is very sensitive to short-run fluctuations. *mbar dictates elasticity
The Troubled Asset Relief Program was originally designed to ________, but funds were ultimately used ________. - bolster bank stock prices; to pay bank executive bonuses - bail out banks; for purchases of "toxic assets" - nationalize banks; for unemployment insurance and financing the wars in Iraq and Afghanistan - prevent takeovers of U.S. banks by foreign nationals; to insure assets held by member banks - purchase and insure assets held by financial institutions; to purchase equity from financial institutions and bail out U.S. automakers
purchase and insure assets held by financial institutions; to purchase equity from financial institutions and bail out U.S. automakers
According to the Fisher equation, the nominal interest rate is equal to the: - real interest rate plus the rate of inflation. - rate of inflation. - real interest rate plus short-run economic fluctuations. - rate of unemployment. - real interest rate minus the rate of inflation.
real interest rate plus the rate of inflation.
As a college student, you are likely to be impatient; therefore, your consumption growth rate would be: - solely dependent on the amount of future income. - relatively fast. - Not enough information is given. - inversely related to the interest rate. - relatively slow.
relatively slow.
If you see low interest rates, you(r) ________ and consumption growth ________. - expect high rates of inflation; speeds up - save less; slows down - permanent income is constant; is zero - save more; increases - discount the future more; is constant
save less; slows down
When a financial friction is added to the short-run model it: - shifts the MP curve up. - is represented by a movement along the MP curve. - shifts the IS curve down. - shifts the AS curve down. - is represented by a movement along the IS curve.
shifts the MP curve up.
In a paper by Minneapolis Fed Bank president Narayana Kocherlakota, he argues that research in macroeconomics is hampered by: - the state of technology. - a fundamental misunderstanding of the macroeconomy. - too many disagreements by macroeconomists. - models that are too complicated. - the Lucas critique.
state of technology
An inverted yield curve is usually the result of: - the time value of money. - a devaluing currency. - greater uncertainty in the future. - a present-value calculation. - the Fed fighting inflation.
the Fed fighting inflation.
The aggregate supply (AS) curve is derived from: - Okun's law. - the Fisher equation. - the Phillips curve. - the interaction of the IS and MP curves. - the monetary policy rule.
the Phillips curve. *Relates inflation to output
The B in the lifetime utility function represents: - any number greater than one. - expected future wealth. - the risk parameter. - the amount of future discount. - life expectancy.
the amount of future discount. *discount factor, level of patience
In the simple monetary policy rule, R_t - rbar = mbar (pi_t - pibar), (pi_t-pibar) represents: - the target rate of inflation. - the marginal product of capital. - how sensitive monetary policy is to changes in inflation. - the risk premium. - the deviation of the inflation rate from the target rate.
the deviation of the inflation rate from the target rate.
According to the Fisher equation, the real interest rate is given by: - the nominal interest rate plus the rate of inflation. - zero. - the nominal interest rate minus the rate of unemployment. - the rate of economic growth. - the nominal interest rate minus the rate of inflation.
the nominal interest rate minus the rate of inflation.
The intertemporal budget constraint basically states that: - there is no future consumption because there is no future income. - the present value of consumption is paid for by today's income only. - the present value of consumption must equal lifetime income only. - total consumption equals total income. - the present value of consumption must equal lifetime wealth.
the present value of consumption must equal lifetime wealth.
Human wealth is given by: - the present value of labor income. - health. - human capital accumulation. - government transfers. - education.
the present value of labor income.
To identify an asset bubble, economists and analysts frequently rely on: - corporate annual reports. - the price-earnings ratio. - the current stock market price growth relative to average stock price growth. - a stock's "beta." - the present discounted value of expected profits.
the price-earnings ratio.
Policymakers will find it easier to achieve their goals by sticking to policy rules rather than discretion if they face the problem of: - adaptive expectations. - very short policy lags. - a weak central bank. - time inconsistency. - discretionary fiscal policy.
time inconsistency.
Your lifetime utility is a function of: - today's consumption and the present value of future consumption. - the present value of future consumption only. - the amount of wealth in the utility function. - your lifetime income. - today's consumption only.
today's consumption and the present value of future consumption.
In the intertemporal budget constraint, f future - f today is: - equal to future borrowing. - equal to zero. - today's saving for the future. - the rate of return on financial wealth. - future savings.
today's saving for the future.
When a financial institution is deemed too systematically important to go under, it is ________. This leads to ________. - a monopoly; above-marginal cost pricing - an "umbrella" bank; less competition - an investment bank; nationalization - too big to fail; moral hazard - a bank-holding company; adverse selection
too big to fail; moral hazard
Xbar In the intertemporal budget constraint is: - a household stock of bank savings. - total lifetime wealth. - today's wages. - lifetime income. - future wealth.
total lifetime wealth.
Household consumption accounts for about ________ of U.S. GDP. - two-thirds - one-half - five-sixths - one-third - one-fourth
two-thirds
If you have maximized your lifetime utility, you get which of the following?
u'(c today) = B (1 + R) u'(c future)
The parameter B in the consumer's lifetime utility function represents the ________ and is ________ if utility is worth more today than in the future. - expected present value of lifetime wealth; unknown today - value of future consumption; equal to one or equal to zero - weight he or she puts on the future relative to today; less than one - annual income growth; equal to the average GDP growth rate - rate of return to savings; equal to long-term bond yields
weight he or she puts on the future relative to today; less than one * B<1 = less consumer patience
If the central bank is targeting the money supply, the money supply is ________ and ________ with respect to the nominal interest rate. - whatever level is dictated by the central bank; slopes downward - whatever level is dictated by the president; is horizontal - whatever level is dictated by the central bank; is vertical - equal to money velocity; is vertical - whatever level is dictated by the central bank; is horizontal
whatever level is dictated by the central bank; is vertical
If b>1 in your lifetime utility function, then: - your utility function displays increasing marginal returns. - you prefer utilities received today relative to the future. - you prefer utilities received in the future relative to today. - Not enough information is given. - you are risk averse.
you prefer utilities received in the future relative to today. * you are more patient
Between 2009 and 2015, the federal funds rate was roughly equal to: - 2 percent. - the unemployment rate. - the rate of inflation. - zero. - 0.5 percent.
zero.
