Question 1

The Ricardian equivalence theorem implies that

Accepted Answer

A)  government debt policy must be handled correctly for the economy to prosper. 
B)  the amounts of government spending are neutral. 
C)  an increase in government spending has no effect on the economy, as long as there is an equal change in taxes. 
D)  the timing of taxes collected by the government is neutral. 
E)  the present value of government spending must be equal to the present value of taxes. 
A)  government debt policy must be handled correctly for the economy to prosper. 
B)  the amounts of government spending are neutral. 
C)  an increase in government spending has no effect on the economy, as long as there is an equal change in taxes. 
D)  the timing of taxes collected by the government is neutral. 
E)  the present value of government spending must be equal to the present value of taxes.

Question 2

In the data, which of the following is most volatile?

Accepted Answer

A)  real GDP 
B)  consumption of durables 
C)  consumption of nondurables 
D)  consumption of services 
E)  aggregate income 
A)  real GDP 
B)  consumption of durables 
C)  consumption of nondurables 
D)  consumption of services 
E)  aggregate income

Question 3

To ensure a well-defined solution to the consumers' intertemporal choice problems, we must assume that consumers' preferences exhibit the properties that

Accepted Answer

A)  they are all identical and that more is always preferred to less. 
B)  more is preferred to less and that the consumer prefers diversity. 
C)  the consumer likes diversity and that more is sometimes preferred to less. 
D)  more is sometimes preferred to less and that first-period consumption and second-period consumption are both normal goods. 
E)  more is sometimes preferred to less and that first-period consumption and second-period consumption are both inferior goods. 
A)  they are all identical and that more is always preferred to less. 
B)  more is preferred to less and that the consumer prefers diversity. 
C)  the consumer likes diversity and that more is sometimes preferred to less. 
D)  more is sometimes preferred to less and that first-period consumption and second-period consumption are both normal goods. 
E)  more is sometimes preferred to less and that first-period consumption and second-period consumption are both inferior goods.

Question 4

An important reason why Ricardian equivalence may fail is if

Accepted Answer

A)  borrowing and lending is done through intermediaries. 
B)  government debt incurred today may not be paid off until after some current consumers are deceased. 
C)  state and local governments also engage in debt finance. 
D)  some consumers are borrowers, while other consumers are lenders. 
E)  real interest rates start to increase. 
A)  borrowing and lending is done through intermediaries. 
B)  government debt incurred today may not be paid off until after some current consumers are deceased. 
C)  state and local governments also engage in debt finance. 
D)  some consumers are borrowers, while other consumers are lenders. 
E)  real interest rates start to increase.

Question 5

If people are finite-lived, Ricardian equivalence can fail because

Accepted Answer

A)  lifetime wealth will change for those currently alive. 
B)  people cannot predict the future. 
C)  this implies taxes must be distorting. 
D)  there is intragenerational redistribution. 
E)  people make bequests. 
A)  lifetime wealth will change for those currently alive. 
B)  people cannot predict the future. 
C)  this implies taxes must be distorting. 
D)  there is intragenerational redistribution. 
E)  people make bequests.

Question 6

The endowment point is the consumption bundle in which

Accepted Answer

A)  savings are zero. 
B)  households maximize utility. 
C)  permanent income is maximized. 
D)  households are indifferent to interest rate changes. 
E)  current consumption is equal to future consumption. 
A)  savings are zero. 
B)  households maximize utility. 
C)  permanent income is maximized. 
D)  households are indifferent to interest rate changes. 
E)  current consumption is equal to future consumption.

Question 7

The simplest device to analyze dynamic decisions is a

Accepted Answer

A)  one-period model. 
B)  two-period model. 
C)  model that includes only the number of years of a typical consumer's lifetime. 
D)  continuous time model. 
E)  dynamic time model. 
A)  one-period model. 
B)  two-period model. 
C)  model that includes only the number of years of a typical consumer's lifetime. 
D)  continuous time model. 
E)  dynamic time model.

Question 8

A consumer's budget constraint in the current period is

Accepted Answer

A)  c = y - t. 
B)  y = c + i + g. 
C)  y = c - s. 
D)  c + s = y + t. 
E)  c + s = y - t. 
A)  c = y - t. 
B)  y = c + i + g. 
C)  y = c - s. 
D)  c + s = y + t. 
E)  c + s = y - t.

Question 9

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the vertical (future consumption)intercept of the consumer's budget line is equal to

Accepted Answer

A)  we. 
B)  we(1 + r). 
C)    
D)    
E)  -(1 + r)c + we(1 + r). 
A)  we. 
B)  we(1 + r). 
C)    
D)    
E)  -(1 + r)c + we(1 + r).

Question 10

The substitution effect of a change in the real interest rate is an example of

Accepted Answer

A)  a negative substitution effect. 
B)  a positive substitution effect. 
C)  an intertemporal substitution effect. 
D)  a temporary substitution effect. 
E)  a permanent substitution effect. 
A)  a negative substitution effect. 
B)  a positive substitution effect. 
C)  an intertemporal substitution effect. 
D)  a temporary substitution effect. 
E)  a permanent substitution effect.

Question 11

The Ricardian Equivalence Theorem implies that a change in the timing of taxes

Accepted Answer

A)  has a positive effect on both consumption and the real interest rate. 
B)  has a negative effect on both consumption and the real interest rate. 
C)  affects consumption negatively and the real interest rate positively. 
D)  affects consumption positively and the real interest rate negatively. 
E)  has no effect on consumption or the real interest rate. 
A)  has a positive effect on both consumption and the real interest rate. 
B)  has a negative effect on both consumption and the real interest rate. 
C)  affects consumption negatively and the real interest rate positively. 
D)  affects consumption positively and the real interest rate negatively. 
E)  has no effect on consumption or the real interest rate.

Question 12

For the consumer to be at an optimum, it must be the case that

Accepted Answer

A)  $ M R S_{C, C^{\prime}}=\frac{1}{(1+r)} $ 
B)  $ M R S_{C, C^{\prime}}=(1+r) $ 
C)  $ M R T_{C, C^{\prime}}=\frac{1}{(1+r)} $ 
D)  MRTc,c' = (1 + r). 
E)  MRSc,c' = we(1 + r). 
A)  $ M R S_{C, C^{\prime}}=\frac{1}{(1+r)} $ 
B)  $ M R S_{C, C^{\prime}}=(1+r) $ 
C)  $ M R T_{C, C^{\prime}}=\frac{1}{(1+r)} $ 
D)  MRTc,c' = (1 + r). 
E)  MRSc,c' = we(1 + r).

Question 13

A one-unit decrease in current income, and a one-unit increase in lifetime wealth

Accepted Answer

A)  both have no effect on the consumer's behaviour. 
B)  have the same effect on the consumer's current and future consumption. 
C)  have different effects on the consumer's current and future consumption. 
D)  will both have the same effect on savings. 
E)  imply that future consumption goes down. 
A)  both have no effect on the consumer's behaviour. 
B)  have the same effect on the consumer's current and future consumption. 
C)  have different effects on the consumer's current and future consumption. 
D)  will both have the same effect on savings. 
E)  imply that future consumption goes down.

Question 14

The optimal consumption bundle is where

Accepted Answer

A)  c = s. 
B)  c = y - t - s. 
C)  the marginal rate of substitution in the current period equals the marginal rate of substitution in the future period. 
D)  budget constraint. 
E)  MRS = 1 = r. 
A)  c = s. 
B)  c = y - t - s. 
C)  the marginal rate of substitution in the current period equals the marginal rate of substitution in the future period. 
D)  budget constraint. 
E)  MRS = 1 = r.

Question 15

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the slope of the consumer's budget line is equal to

Accepted Answer

A)  r × we. 
B)  - $ \frac{1}{(1+r)} $ 
C)  - $ \frac{r}{(1+w e)} $ 
D)  - (1 + r). 
E)  r(1 + we). 
A)  r × we. 
B)  - $ \frac{1}{(1+r)} $ 
C)  - $ \frac{r}{(1+w e)} $ 
D)  - (1 + r). 
E)  r(1 + we).

Question 16

The endowment point is the consumption bundle in which

Accepted Answer

A)  first-period consumption is equal to zero. 
B)  second-period consumption is equal to zero. 
C)  the consumer finds the most utility. 
D)  consumption is equal to disposable income in each period. 
E)  consumption is equal to savings in each period. 
A)  first-period consumption is equal to zero. 
B)  second-period consumption is equal to zero. 
C)  the consumer finds the most utility. 
D)  consumption is equal to disposable income in each period. 
E)  consumption is equal to savings in each period.

Question 17

In the case where current and future consumption are perfect complements, an increase in the real interest rate

Accepted Answer

A)  involves only income effects. 
B)  has ambiguous effects depending on whether the substitution or income effects dominate. 
C)  involves only substitution effects. 
D)  involves a substitution effect only for lenders. 
E)  is relevant only for borrowers. 
A)  involves only income effects. 
B)  has ambiguous effects depending on whether the substitution or income effects dominate. 
C)  involves only substitution effects. 
D)  involves a substitution effect only for lenders. 
E)  is relevant only for borrowers.

Question 18

For all bonds to be indistinguishable,

Accepted Answer

A)  all consumers must never be expected to default on their debts. 
B)  the government must guarantee all bonds. 
C)  all consumers must be identical. 
D)  they must be traded through financial intermediaries. 
E)  only government can issue bonds. 
A)  all consumers must never be expected to default on their debts. 
B)  the government must guarantee all bonds. 
C)  all consumers must be identical. 
D)  they must be traded through financial intermediaries. 
E)  only government can issue bonds.

Question 19

A permanent decrease in taxes leads to

Accepted Answer

A)  a large increase in current consumption. 
B)  a small increase in current consumption. 
C)  a small decrease in current consumption. 
D)  a large decrease in future consumption. 
E)  no changes to consumption. 
A)  a large increase in current consumption. 
B)  a small increase in current consumption. 
C)  a small decrease in current consumption. 
D)  a large decrease in future consumption. 
E)  no changes to consumption.

Question 20

The property of diminishing marginal rate of substitution implies that

Accepted Answer

A)  the more current consumption the consumer has, the less future consumption she is willing to give up for one more unit of current consumption. 
B)  the less current consumption the consumer has, the less future consumption she is willing to give up for one more unit of current consumption. 
C)  the more current consumption the consumer has, the more future consumption she is willing to give up for one more unit of current consumption. 
D)  the indifference curves are bowed away from the origin. 
E)  the indifference curves have a constant slope. 
A)  the more current consumption the consumer has, the less future consumption she is willing to give up for one more unit of current consumption. 
B)  the less current consumption the consumer has, the less future consumption she is willing to give up for one more unit of current consumption. 
C)  the more current consumption the consumer has, the more future consumption she is willing to give up for one more unit of current consumption. 
D)  the indifference curves are bowed away from the origin. 
E)  the indifference curves have a constant slope.

The Ricardian equivalence theorem implies that

In the data, which of the following is most volatile?

To ensure a well-defined solution to the consumers' intertemporal choice problems, we must assume that consumers' preferences exhibit the properties that

An important reason why Ricardian equivalence may fail is if

If people are finite-lived, Ricardian equivalence can fail because

The endowment point is the consumption bundle in which

The simplest device to analyze dynamic decisions is a

A consumer's budget constraint in the current period is

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the vertical (future consumption)intercept of the consumer's budget line is equal to

The substitution effect of a change in the real interest rate is an example of

The Ricardian Equivalence Theorem implies that a change in the timing of taxes

For the consumer to be at an optimum, it must be the case that

A one-unit decrease in current income, and a one-unit increase in lifetime wealth

The optimal consumption bundle is where

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the slope of the consumer's budget line is equal to

The endowment point is the consumption bundle in which

In the case where current and future consumption are perfect complements, an increase in the real interest rate

For all bonds to be indistinguishable,

A permanent decrease in taxes leads to

The property of diminishing marginal rate of substitution implies that

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

The Ricardian equivalence theorem implies that

In the data, which of the following is most volatile?

To ensure a well-defined solution to the consumers' intertemporal choice problems, we must assume that consumers' preferences exhibit the properties that

An important reason why Ricardian equivalence may fail is if

If people are finite-lived, Ricardian equivalence can fail because

The endowment point is the consumption bundle in which

The simplest device to analyze dynamic decisions is a

A consumer's budget constraint in the current period is

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the vertical (future consumption)intercept of the consumer's budget line is equal to

The substitution effect of a change in the real interest rate is an example of

The Ricardian Equivalence Theorem implies that a change in the timing of taxes

For the consumer to be at an optimum, it must be the case that

A one-unit decrease in current income, and a one-unit increase in lifetime wealth

The optimal consumption bundle is where

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the slope of the consumer's budget line is equal to

The endowment point is the consumption bundle in which

In the case where current and future consumption are perfect complements, an increase in the real interest rate

For all bonds to be indistinguishable,

A permanent decrease in taxes leads to

The property of diminishing marginal rate of substitution implies that

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