Question 1

Actual consumption behavior exhibits both "excess smoothness" and "excess sensitivity," which means that

Accepted Answer

A) consumption responds too strongly to surprise changes in income 
B) consumption responds too little to predictable changes in income 
C) consumption always follows a random walk 
D) consumption always adjusts with long lags 
E) none of the above 
A) consumption responds too strongly to surprise changes in income 
B) consumption responds too little to predictable changes in income 
C) consumption always follows a random walk 
D) consumption always adjusts with long lags 
E) none of the above

Question 2

In 1968, President Johnson and Congress implemented a temporary surcharge on personal and corporate income taxes.What was the effect of this?

Accepted Answer

A) economic activity declined sharply and the economy entered a recession 
B)  consumption and investment spending declined significantly 
C)  households decreased their savings and aggregate demand was hardly affected at all 
D) consumption and saving declined, while investment was not affected 
E) both A and B 
A) economic activity declined sharply and the economy entered a recession 
B)  consumption and investment spending declined significantly 
C)  households decreased their savings and aggregate demand was hardly affected at all 
D) consumption and saving declined, while investment was not affected 
E) both A and B

Question 3

The permanent-income theory of consumption implies that

Accepted Answer

A) the short-run multiplier is smaller than the long-run multiplier 
B) the short-run multiplier is larger than the long-run multiplier 
C) the short-run multiplier is identical to the long-run multiplier 
D) the long-run multiplier is equal to 1 
E) the short-run multiplier is less than 1 
A) the short-run multiplier is smaller than the long-run multiplier 
B) the short-run multiplier is larger than the long-run multiplier 
C) the short-run multiplier is identical to the long-run multiplier 
D) the long-run multiplier is equal to 1 
E) the short-run multiplier is less than 1

Question 4

The sensitivity of current consumption to changes in current income arises from

Accepted Answer

A) liquidity constraints 
B) the close relation between current consumption and permanent income 
C) income changes that tend to be mostly random and unpredictable 
D) the close relation between current and lagged consumption 
E) none of the above 
A) liquidity constraints 
B) the close relation between current consumption and permanent income 
C) income changes that tend to be mostly random and unpredictable 
D) the close relation between current and lagged consumption 
E) none of the above

Question 5

According to the life-cycle theory of consumption, what should have occurred after the stock market crash of 1987?

Accepted Answer

A) a decrease in current consumption 
B) no change in current consumption since only nominal wealth was lost 
C) no change in aggregate consumption since most people do not invest in the stock market 
D) an increase in consumption since people were afraid to save 
E) both B and C 
A) a decrease in current consumption 
B) no change in current consumption since only nominal wealth was lost 
C) no change in aggregate consumption since most people do not invest in the stock market 
D) an increase in consumption since people were afraid to save 
E) both B and C

Question 6

Assume you define your permanent income as the average of your income over the most recent five years, and you always consume 90% of your permanent income.What is your current consumption if your income was $30,000 in the first of these five years and each year from then on you got a raise of $2,000?

Accepted Answer

A) $36,000 
B) $34,200 
C) $30,600 
D) $28,800 
E) $27,000 
A) $36,000 
B) $34,200 
C) $30,600 
D) $28,800 
E) $27,000

Question 7

The permanent-income theory of consumption asserts that people prefer a stable level of consumption throughout their lives and

Accepted Answer

A) will forego temporary or transitory opportunities to obtain higher income and consumption 
B) calculate their level of consumption from the information they have regarding their average expected lifetime income 
C) will only change their consumption behavior significantly if there is a transitory change in their income 
D) this implies that the short-run mpc is greater than the long-run mpc 
E) therefore always save the same fraction of their current income 
A) will forego temporary or transitory opportunities to obtain higher income and consumption 
B) calculate their level of consumption from the information they have regarding their average expected lifetime income 
C) will only change their consumption behavior significantly if there is a transitory change in their income 
D) this implies that the short-run mpc is greater than the long-run mpc 
E) therefore always save the same fraction of their current income

Question 8

According to the permanent-income theory of consumption, a person whose income fluctuates widely from year to year will have

Accepted Answer

A) a higher apc in high-income years than in low-income years 
B) a lower apc in high-income years than in low-income years 
C) a consistently high apc year after year 
D) a consistently low apc year after year 
E) an apc that is equal to 1 
A) a higher apc in high-income years than in low-income years 
B) a lower apc in high-income years than in low-income years 
C) a consistently high apc year after year 
D) a consistently low apc year after year 
E) an apc that is equal to 1

Question 9

The long-run marginal propensity to consume (mpc) is

Accepted Answer

A) 	larger than the short-run mpc 
B) 	slightly smaller than the short-run mpc 
C)  	about half the size of the short-run mpc 
D)  	identical to the short-run mpc 
E)  	always equal to 1 
A) 	larger than the short-run mpc 
B) 	slightly smaller than the short-run mpc 
C)  	about half the size of the short-run mpc 
D)  	identical to the short-run mpc 
E)  	always equal to 1

Question 10

According to the life-cycle theory of consumption, an individual's

Accepted Answer

A) mpc out of wealth is fairly large 
B) mpc out of labor income increases with increasing age, until it becomes zero at retirement age 
C) mpc out of transitory income is fairly small 
D) level of consumption will decrease if his/her retirement age is increased 
E) none of the above 
A) mpc out of wealth is fairly large 
B) mpc out of labor income increases with increasing age, until it becomes zero at retirement age 
C) mpc out of transitory income is fairly small 
D) level of consumption will decrease if his/her retirement age is increased 
E) none of the above

Actual consumption behavior exhibits both "excess smoothness" and "excess sensitivity," which means that

In 1968, President Johnson and Congress implemented a temporary surcharge on personal and corporate income taxes.What was the effect of this?

The permanent-income theory of consumption implies that

The sensitivity of current consumption to changes in current income arises from

According to the life-cycle theory of consumption, what should have occurred after the stock market crash of 1987?

The permanent-income theory of consumption asserts that people prefer a stable level of consumption throughout their lives and

According to the permanent-income theory of consumption, a person whose income fluctuates widely from year to year will have

The long-run marginal propensity to consume (mpc) is

According to the life-cycle theory of consumption, an individual's

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Aggregate supply and the phillips curve

Unemployment

Inflation

Policy preview

Income and spending

Money, interest, and income

Monetary and fiscal policy

International linkages

Investment spending

The demand for money

The fed, money, and credit

Policy

Financial markets and asset prices

The national debt

Recession and depression

Inflation and hyperinflation

International adjustment and interdependence

Advanced topics

Filters

Exam 14: Consumption and saving

Actual consumption behavior exhibits both "excess smoothness" and "excess sensitivity," which means that

In 1968, President Johnson and Congress implemented a temporary surcharge on personal and corporate income taxes.What was the effect of this?

The permanent-income theory of consumption implies that

The sensitivity of current consumption to changes in current income arises from

According to the life-cycle theory of consumption, what should have occurred after the stock market crash of 1987?

The permanent-income theory of consumption asserts that people prefer a stable level of consumption throughout their lives and

According to the permanent-income theory of consumption, a person whose income fluctuates widely from year to year will have

The long-run marginal propensity to consume (mpc) is

According to the life-cycle theory of consumption, an individual's

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Aggregate supply and the phillips curve

Unemployment

Inflation

Policy preview

Income and spending

Money, interest, and income

Monetary and fiscal policy

International linkages

Investment spending

The demand for money

The fed, money, and credit

Policy

Financial markets and asset prices

The national debt

Recession and depression

Inflation and hyperinflation

International adjustment and interdependence

Advanced topics

Filters