Question 1

When different consumers pay different amounts of taxes, Ricardian equivalence may fail because

Accepted Answer

A)  alternative ways of collecting the same tax revenue can have different welfare effects. 
B)  consumers can become jealous of one another. 
C)  such differences in taxes create credit market imperfections. 
D)  higher taxes on more talented people may be politically popular. 
E)  such differences in taxes create welfare losses to the business community. 
A)  alternative ways of collecting the same tax revenue can have different welfare effects. 
B)  consumers can become jealous of one another. 
C)  such differences in taxes create credit market imperfections. 
D)  higher taxes on more talented people may be politically popular. 
E)  such differences in taxes create welfare losses to the business community.

Question 2

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. 
E)  an increase in government savings is always matched by an increase in the real interest rate. 
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. 
E)  an increase in government savings is always matched by an increase in the real interest rate.

Question 3

For a competitive equilibrium in a two-period model, which of the following is true?

Accepted Answer

A)  Y = C + G 
B)  C = Y + S 
C)  Y = C - T 
D)  C = Y + T 
E)  Y = C + I 
A)  Y = C + G 
B)  C = Y + S 
C)  Y = C - T 
D)  C = Y + T 
E)  Y = C + I

Question 4

An increase in first-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. 
E)  a decrease in first-period consumption, a decrease in second-period consumption, and an increase 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. 
E)  a decrease in first-period consumption, a decrease in second-period consumption, and an increase in saving.

Question 5

In our two-period model, the government must pay off all debt, in reality

Accepted Answer

A)  this is approximately correct. 
B)  only developing countries can perpetually run deficits. 
C)  governments take longer than two-periods to pay off debt, but almost always do. 
D)  only countries in the European Union are unlikely to ever pay off their debt. 
E)  governments rarely pay off all of their debt. 
A)  this is approximately correct. 
B)  only developing countries can perpetually run deficits. 
C)  governments take longer than two-periods to pay off debt, but almost always do. 
D)  only countries in the European Union are unlikely to ever pay off their debt. 
E)  governments rarely pay off all of their debt.

Question 6

The government's future period budget constraint is

Accepted Answer

A)  G' + (1 + r)B = T'. 
B)  G' + T' = (1 + r)B. 
C)  G + G' = T - T'. 
D)  B = G - T. 
E)  G' = T' + (1 + r)B. 
A)  G' + (1 + r)B = T'. 
B)  G' + T' = (1 + r)B. 
C)  G + G' = T - T'. 
D)  B = G - T. 
E)  G' = T' + (1 + r)B.

Question 7

Intertemporal decisions involve economic decisions

Accepted Answer

A)  made within a given period of time. 
B)  made in between two periods of time. 
C)  involving tradeoffs across periods of time. 
D)  that ignore concerns about the future. 
E)  that are made only once. 
A)  made within a given period of time. 
B)  made in between two periods of time. 
C)  involving tradeoffs across periods of time. 
D)  that ignore concerns about the future. 
E)  that are made only once.

Question 8

If future income increases, and current income decreases, with lifetime wealth unchanged, a consumer

Accepted Answer

A)  reduces current savings. 
B)  consumes more in the future. 
C)  increases current savings. 
D)  consumes more in the present. 
E)  consumes less in the present. 
A)  reduces current savings. 
B)  consumes more in the future. 
C)  increases current savings. 
D)  consumes more in the present. 
E)  consumes less in the present.

Question 9

The property of diminishing marginal rate of substitution follows from the property that the indifference curves are

Accepted Answer

A)  downward sloping. 
B)  upward sloping. 
C)  bowed in toward the origin. 
D)  bowed out from the origin. 
E)  negatively sloped. 
A)  downward sloping. 
B)  upward sloping. 
C)  bowed in toward the origin. 
D)  bowed out from the origin. 
E)  negatively sloped.

Question 10

The private supply of credit is an increasing function of the real interest rate if

Accepted Answer

A)  the substitution effects outweighs the income effects when added across all consumers. 
B)  the income effects outweighs the substitution effects when added across all consumers. 
C)  the income effect outweighs the substitution effects for borrowers. 
D)  the substitution and income effects cancel each other. 
E)  consumers are rational. 
A)  the substitution effects outweighs the income effects when added across all consumers. 
B)  the income effects outweighs the substitution effects when added across all consumers. 
C)  the income effect outweighs the substitution effects for borrowers. 
D)  the substitution and income effects cancel each other. 
E)  consumers are rational.

Question 11

If the government reduces current taxes, government bonds increase, and according to Ricardian equivalence in the credit market

Accepted Answer

A)  the supply curve of private savings shifts to the left to keep the real interest rate constant. 
B)  the real interest rate increases. 
C)  private savings decreases by an amount equal to the increase in government bonds. 
D)  the supply curve of private savings shifts right to keep the real interest rate constant. 
E)  the supply curve of private savings shifts to the right and the real interest rate increases. 
A)  the supply curve of private savings shifts to the left to keep the real interest rate constant. 
B)  the real interest rate increases. 
C)  private savings decreases by an amount equal to the increase in government bonds. 
D)  the supply curve of private savings shifts right to keep the real interest rate constant. 
E)  the supply curve of private savings shifts to the right and the real interest rate increases.

Question 12

Bonds are assumed to trade directly

Accepted Answer

A)  through the Bank of Canada. 
B)  through the federal government. 
C)  through financial intermediaries. 
D)  in the credit market. 
E)  in the stock market. 
A)  through the Bank of Canada. 
B)  through the federal government. 
C)  through financial intermediaries. 
D)  in the credit market. 
E)  in the stock market.

Question 13

Aggregate consumption is

Accepted Answer

A)  positively related to savings. 
B)  negatively related to real GDP. 
C)  more volatile than aggregate income. 
D)  less variable than aggregate income. 
E)  more variable than savings. 
A)  positively related to savings. 
B)  negatively related to real GDP. 
C)  more volatile than aggregate income. 
D)  less variable than aggregate income. 
E)  more variable than savings.

Question 14

A consumer is a lender if

Accepted Answer

A)  optimum current consumption is less than current disposable income. 
B)  optimum current consumption is greater than current disposable income. 
C)  current disposable income is greater than future disposable income. 
D)  the consumer's indifference curves are relatively flat. 
E)  the consumer's indifference curves are negatively sloped. 
A)  optimum current consumption is less than current disposable income. 
B)  optimum current consumption is greater than current disposable income. 
C)  current disposable income is greater than future disposable income. 
D)  the consumer's indifference curves are relatively flat. 
E)  the consumer's indifference curves are negatively sloped.

Question 15

An increase in the real interest

Accepted Answer

A)  increases savings for both borrowers and lenders. 
B)  increases savings for borrowers, but has an uncertain effect on the savings of lenders. 
C)  increases savings for lenders, but has an uncertain effect on the savings of borrowers. 
D)  has an uncertain effect on the savings of both borrowers and lenders. 
E)  reduces savings for both borrowers and lenders. 
A)  increases savings for both borrowers and lenders. 
B)  increases savings for borrowers, but has an uncertain effect on the savings of lenders. 
C)  increases savings for lenders, but has an uncertain effect on the savings of borrowers. 
D)  has an uncertain effect on the savings of both borrowers and lenders. 
E)  reduces savings for both borrowers and lenders.

Question 16

For a competitive equilibrium in a two-period model, which of the following is true?

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 present value of government spending must be greater than the present value of taxes 
D)  the financial market clears 
E)  all deficits are financed by issuing debt 
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 present value of government spending must be greater than the present value of taxes 
D)  the financial market clears 
E)  all deficits are financed by issuing debt

Question 17

A good proxy for the flow of consumption services would be

Accepted Answer

A)  aggregate consumption. 
B)  consumption of services and consumption of durables. 
C)  consumption of durables and consumption of nondurables. 
D)  consumption of nondurables and consumption of services. 
E)  consumption of durables and services. 
A)  aggregate consumption. 
B)  consumption of services and consumption of durables. 
C)  consumption of durables and consumption of nondurables. 
D)  consumption of nondurables and consumption of services. 
E)  consumption of durables and services.

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. 
E)  balance savings with consumption over time. 
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. 
E)  balance savings with consumption over time.

Question 19

A key variable in intertemporal choice is

Accepted Answer

A)  consumption. 
B)  investment. 
C)  output per worker. 
D)  real interest rate. 
E)  total factor productivity. 
A)  consumption. 
B)  investment. 
C)  output per worker. 
D)  real interest rate. 
E)  total factor productivity.

Question 20

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. 
E)  the distortions are only faced by the business sector. 
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. 
E)  the distortions are only faced by the business sector.

When different consumers pay different amounts of taxes, Ricardian equivalence may fail because

If government spending is held constant and Ricardian equivalence holds,

For a competitive equilibrium in a two-period model, which of the following is true?

An increase in first-period income results in

In our two-period model, the government must pay off all debt, in reality

The government's future period budget constraint is

Intertemporal decisions involve economic decisions

If future income increases, and current income decreases, with lifetime wealth unchanged, a consumer

The property of diminishing marginal rate of substitution follows from the property that the indifference curves are

The private supply of credit is an increasing function of the real interest rate if

If the government reduces current taxes, government bonds increase, and according to Ricardian equivalence in the credit market

Bonds are assumed to trade directly

Aggregate consumption is

A consumer is a lender if

An increase in the real interest

For a competitive equilibrium in a two-period model, which of the following is true?

A good proxy for the flow of consumption services would be

Consumption smoothing refers to

A key variable in intertemporal choice is

Distorting taxes can invalidate Ricardian equivalence because

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behaviour: 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

A Monetary Intertemporal Model: Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: A Deeper Look

Filters

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

When different consumers pay different amounts of taxes, Ricardian equivalence may fail because

If government spending is held constant and Ricardian equivalence holds,

For a competitive equilibrium in a two-period model, which of the following is true?

An increase in first-period income results in

In our two-period model, the government must pay off all debt, in reality

The government's future period budget constraint is

Intertemporal decisions involve economic decisions

If future income increases, and current income decreases, with lifetime wealth unchanged, a consumer

The property of diminishing marginal rate of substitution follows from the property that the indifference curves are

The private supply of credit is an increasing function of the real interest rate if

If the government reduces current taxes, government bonds increase, and according to Ricardian equivalence in the credit market

Bonds are assumed to trade directly

Aggregate consumption is

A consumer is a lender if

An increase in the real interest

For a competitive equilibrium in a two-period model, which of the following is true?

A good proxy for the flow of consumption services would be

Consumption smoothing refers to

A key variable in intertemporal choice is

Distorting taxes can invalidate Ricardian equivalence because

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behaviour: 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

A Monetary Intertemporal Model: Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: A Deeper Look

Filters