Question 1

A rightward shift in the intertemporal budget line would be caused by ________.

Accepted Answer

A)   an increase in future income and wealth.
B)   an increase in future income and a decrease in wealth.
C)   a decrease in future income and an increase in wealth.
D)   a decrease in future income and wealth.E) C) and D)
F) All of the above

Question 2

If an indifference curve intersects the budget constraint at two points, then ________.

Accepted Answer

A)   the consumer would be equally happy at either of those two points
B)   optimal consumption is found by moving to a lower indifference curve
C)   optimal consumption is found by moving to a lower budget constraint
D)   the consumer will choose the point that minimizes consumption expenditureE) B) and C)
F) A) and B)

Question 3

Intertemporal Budget Constraint
 
-Given the table above, suppose consumption in period two is $40,000. Then, the interest rate rises to five percent, and period-two consumption rises to $41,050. We may infer that ________.

Accepted Answer

A)   the income effect is stronger than the substitution effect
B)   the substitution effect is stronger than the income effect
C)   the substitution and income effects cancel out
D)   this consumer has a binding borrowing constraintE) B) and D)
F) A) and D)

Question 4

An intertemporal budget constraint is downward sloping due to ________.

Accepted Answer

A)   the trade-off between current and future consumption.
B)   the law of diminishing marginal productivity.
C)   the law of supply.
D)   the law of demand.E) None of the above
F) A) and D)

Question 5

For many consumption activities -- skiing, for example -- the activity becomes more enjoyable as the consumer becomes more experienced. Assuming that "training consumption" is inexpensive relative to "proficient consumption," do such activities make it more or less likely that a borrowing constraint will be binding?

Accepted Answer

Such activities encourage a sh...

Question 6

Consumption smoothing is a logical consequence of ________.

Accepted Answer

A)   basing decision-making on real rather than nominal interest rates.
B)   the convexity of indifference curves and the ability to borrow and lend.
C)   the negative slope fo the intertemporal budget constraint.
D)   rational expectations.E) A) and C)
F) A) and D)

Question 7

Suppose consumers anticipate that their wealth will grow over time, because of interest earnings and capital gains. According to the life-cycle hypothesis, such optimism should cause current consumption to be ________.

Accepted Answer

A)   relatively low
B)   relatively insensitive to changes in income
C)   rising as individuals near retirement age
D)   relatively highE) A) and B)
F) All of the above

Question 8

The value of the marginal propensity to consume is ________.

Accepted Answer

A)   equal to one.
B)   lies between zero and one.
C)   is greater than one.
D)   is less than zero.E) A) and D)
F) B) and D)

Question 9

Assuming no bequests, with a real rate of interest of 10 percent, wealth of $60,000, current income of $70,000, future income of $180,000 and future consumption of $158,000, current consumption must equal ________.

Accepted Answer

A)   $158,000.
B)   $150,000.
C)   $152,000.
D)   $130,000.E) A) and B)
F) B) and C)

Question 10

According to the life-cycle hypothesis, as people grow older ________.

Accepted Answer

A)   their wealth grows before and after retirement.
B)   their wealth declines before and after retirement.
C)   their wealth grows before retirement, then declines after retirement.
D)   their wealth falls before retirement, then rises after retirement.E) C) and D)
F) B) and C)

Question 11

According to the life-cycle hypothesis, as consumers get older ________.

Accepted Answer

A)   the marginal propensity to consume out of wealth and income rise.
B)   the marginal propensity to consume out of wealth falls and the marginal propensity to consume out of income rises.
C)   the marginal propensity to consume out of wealth rises and the marginal propensity to consume out of income falls.
D)   the marginal propensity to consume out of wealth and income fall.E) A) and D)
F) A) and B)

Question 12

Intertemporal choice theory is more consistent with ________.

Accepted Answer

A)   Keynesian theory than the permanent income hypothesis of Friedman.
B)   the permanent income hypothesis than Keynesian theory.
C)   Keynesian theory than the life-cycle hypothesis.
D)   Keynesian theory than the Gini coefficient theory.E) A) and B)
F) A) and C)

Question 13

In the permanent income hypothesis, income that does not persist for a long period of time is known as ________.

Accepted Answer

A)   current income.
B)   transitory income.
C)   insufficient income.
D)   limited income.E) C) and D)
F) A) and B)

Question 14

Intertemporal Budget Constraint
 
-Referring to the table above, the present discounted value of initial wealth plus total income is ________.

Accepted Answer

A)   $67,308
B)   $71,200
C)   $70,400
D)   $68,462E) C) and D)
F) None of the above

Question 15

________ will increase current consumption, saving, and future consumption.

Accepted Answer

A)   an increase in future income.
B)   an increase in initial wealth.
C)   an increase in current income.
D)   a decrease in the real interest rateE) None of the above
F) B) and C)

Question 16

Consumption smoothing refers to ________.

Accepted Answer

A)   the impact of future income on current consumption and of current income on future consumption
B)   the constancy of consumption over time
C)   the impact of current consumption on future income and of future consumption on current income
D)   the tendency of consumers to adopt similar spending habitsE) C) and D)
F) All of the above

Question 17

The Keynesian consumption function and the theory of intertemporal choice are consistent for households ________.

Accepted Answer

A)   with a binding budget constraint
B)   with little or no initial wealth
C)   whose consumption remains positive, even if income is zero
D)   whose consumption cannot exceed current incomeE) All of the above
F) None of the above

Question 18

Would the Keynesian consumption function work well in a world of libertarian paternalists?

Accepted Answer

If consumption behavior depends mostly o...

Question 19

Consumption spending comprises what percentage of total spending?

Accepted Answer

A)   0.7 percent.
B)   7 percent.
C)   70 percent.
D)   700 percent.E) C) and D)
F) None of the above

Question 20

During the 2007-2009 financial crisis, many households found themselves with debts to repay. How might this explain the consumer response to the 2008 Tax Rebate?

Accepted Answer

The temporary tax rebate did not add muc...

Exam 18: Consumption and Saving

Consumption smoothing is a logical consequence of ________.

Correct Answer
verified

Intertemporal Budget Constraint -Referring to the table above, the present discounted value of initial wealth plus total income is ________.

Correct Answer
verified

Suppose consumers anticipate that their wealth will grow over time, because of interest earnings and capital gains. According to the life-cycle hypothesis, such optimism should cause current consumption to be ________.

Correct Answer
verified

The value of the marginal propensity to consume is ________.

Correct Answer
verified

Consumption spending comprises what percentage of total spending?

Correct Answer
verified

The Keynesian consumption function and the theory of intertemporal choice are consistent for households ________.

Correct Answer
verified

If an indifference curve intersects the budget constraint at two points, then ________.

Correct Answer
verified

Intertemporal choice theory is more consistent with ________.

Correct Answer
verified

________ will increase current consumption, saving, and future consumption.

Correct Answer
verified

According to the life-cycle hypothesis, as people grow older ________.

Correct Answer
verified

A rightward shift in the intertemporal budget line would be caused by ________.

Correct Answer
verified

Consumption smoothing refers to ________.

Correct Answer
verified

In the permanent income hypothesis, income that does not persist for a long period of time is known as ________.

Correct Answer
verified

According to the life-cycle hypothesis, as consumers get older ________.

Correct Answer
verified

An intertemporal budget constraint is downward sloping due to ________.

Correct Answer
verified

Assuming no bequests, with a real rate of interest of 10 percent, wealth of $60,000, current income of $70,000, future income of $180,000 and future consumption of $158,000, current consumption must equal ________.

Correct Answer
verified

Would the Keynesian consumption function work well in a world of libertarian paternalists?

Correct Answer
verified
If consumption behavior depends mostly o...
View Answer

During the 2007-2009 financial crisis, many households found themselves with debts to repay. How might this explain the consumer response to the 2008 Tax Rebate?

Correct Answer
verified
The temporary tax rebate did not add muc...
View Answer

Correct Answer
verified
Such activities encourage a sh...
View Answer

Intertemporal Budget Constraint -Given the table above, suppose consumption in period two is $40,000. Then, the interest rate rises to five percent, and period-two consumption rises to $41,050. We may infer that ________.

Correct Answer
verified

Exam 18: Consumption and Saving

Consumption smoothing is a logical consequence of ________.

Correct AnswerverifiedShow Answer

Intertemporal Budget Constraint -Referring to the table above, the present discounted value of initial wealth plus total income is ________.

Correct AnswerverifiedShow Answer

Suppose consumers anticipate that their wealth will grow over time, because of interest earnings and capital gains. According to the life-cycle hypothesis, such optimism should cause current consumption to be ________.

Correct AnswerverifiedShow Answer

The value of the marginal propensity to consume is ________.

Correct AnswerverifiedShow Answer

Consumption spending comprises what percentage of total spending?

Correct AnswerverifiedShow Answer

The Keynesian consumption function and the theory of intertemporal choice are consistent for households ________.

Correct AnswerverifiedShow Answer

If an indifference curve intersects the budget constraint at two points, then ________.

Correct AnswerverifiedShow Answer

Intertemporal choice theory is more consistent with ________.

Correct AnswerverifiedShow Answer

________ will increase current consumption, saving, and future consumption.

Correct AnswerverifiedShow Answer

According to the life-cycle hypothesis, as people grow older ________.

Correct AnswerverifiedShow Answer

A rightward shift in the intertemporal budget line would be caused by ________.

Correct AnswerverifiedShow Answer

Consumption smoothing refers to ________.

Correct AnswerverifiedShow Answer

In the permanent income hypothesis, income that does not persist for a long period of time is known as ________.

Correct AnswerverifiedShow Answer

According to the life-cycle hypothesis, as consumers get older ________.

Correct AnswerverifiedShow Answer

An intertemporal budget constraint is downward sloping due to ________.

Correct AnswerverifiedShow Answer

Assuming no bequests, with a real rate of interest of 10 percent, wealth of $60,000, current income of $70,000, future income of $180,000 and future consumption of $158,000, current consumption must equal ________.

Correct AnswerverifiedShow Answer

Would the Keynesian consumption function work well in a world of libertarian paternalists?

Correct AnswerverifiedIf consumption behavior depends mostly o...View AnswerShow Answer

During the 2007-2009 financial crisis, many households found themselves with debts to repay. How might this explain the consumer response to the 2008 Tax Rebate?

Correct AnswerverifiedThe temporary tax rebate did not add muc...View AnswerShow Answer

Correct AnswerverifiedSuch activities encourage a sh...View AnswerShow Answer

Intertemporal Budget Constraint -Given the table above, suppose consumption in period two is $40,000. Then, the interest rate rises to five percent, and period-two consumption rises to $41,050. We may infer that ________.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
If consumption behavior depends mostly o...
View Answer

Correct Answer
verified
The temporary tax rebate did not add muc...
View Answer

Correct Answer
verified
Such activities encourage a sh...
View Answer

Correct Answer
verified