Question 1

The rate of interest you receive for the use of money is called the:

Accepted Answer

A) deposit rate. 
B) discount rate. 
C) borrowing rate. 
D) prime rate. 
A) deposit rate. 
B) discount rate. 
C) borrowing rate. 
D) prime rate.

Question 2

If C0 and C1 are both normal goods, for a person who saves in the initial equilibrium, when i rises:

Accepted Answer

A) C0 and C1 both increase. 
B) C1 declines. 
C) C1 increases. 
D) C0 and C1 both decline. 
A) C0 and C1 both increase. 
B) C1 declines. 
C) C1 increases. 
D) C0 and C1 both decline.

Question 3

A decrease in income in period 1 will:

Accepted Answer

A) rotate the budget line clockwise around the endowment point. 
B) rotate the budget line counter- clockwise around the endowment point. 
C) parallel shift the budget line up. 
D) parallel shift the budget line down. 
A) rotate the budget line clockwise around the endowment point. 
B) rotate the budget line counter- clockwise around the endowment point. 
C) parallel shift the budget line up. 
D) parallel shift the budget line down.

Question 4

In periods 0 and 1, Ralph consumed two goods, x1 and x2, and his utility functions in the two periods were identical. In period 0 the prices of x1 and x2 were $2 and $1 respectively, and Ralph consumed 10 units of x1 and 80 units of x2. In period 1 the prices of x1 and x2 were identical, and equal to $1. If Ralph consumed 40 units of x1 and 40 units of x2 in period 1, then the Laspeyres quantity index is:

Accepted Answer

A) 9/8. 
B) 6/5. 
C) 8/9. 
D) 5/6. 
A) 9/8. 
B) 6/5. 
C) 8/9. 
D) 5/6.

Question 5

The rate of interest that people will be willing to pay:

Accepted Answer

A) is independent of their personal rate of time preference (impatience). 
B) will increase as they come to assign more importance to distant events relative to events in the near future. 
C) depends primarily upon their present plans for consumption. 
D) will be higher the more attractive are the current opportunities they perceive relative to future opportunities. 
A) is independent of their personal rate of time preference (impatience). 
B) will increase as they come to assign more importance to distant events relative to events in the near future. 
C) depends primarily upon their present plans for consumption. 
D) will be higher the more attractive are the current opportunities they perceive relative to future opportunities.

Question 6

An individual's intertemporal budget for current consumption includes her:

Accepted Answer

A) current income only. 
B) current income and the present value of future income. 
C) current income and the future value of future income. 
D) present value of future income only. 
A) current income only. 
B) current income and the present value of future income. 
C) current income and the future value of future income. 
D) present value of future income only.

Question 7

If a person's marginal rate of time preference for equal amounts of consumption in the present and next periods is less than one, she is said to be:

Accepted Answer

A) elastic. 
B) patient. 
C) normal. 
D) impatient. 
A) elastic. 
B) patient. 
C) normal. 
D) impatient.

Question 8

Future values are:

Accepted Answer

A) the inverse of present values. 
B) amounts that can be borrowed today in exchange for future payment. 
C) the negative of present values. 
D) are the annuity values divided by the number of years. 
A) the inverse of present values. 
B) amounts that can be borrowed today in exchange for future payment. 
C) the negative of present values. 
D) are the annuity values divided by the number of years.

Question 9

According to the separation theorem, individuals choose among different income streams by choosing the one with the largest:

Accepted Answer

A) future value. 
B) unconstrained utility. 
C) constrained utility. 
D) present value. 
A) future value. 
B) unconstrained utility. 
C) constrained utility. 
D) present value.

Question 10

Firms which sell consumer capital goods are likely to sell the consumable good:

Accepted Answer

A) at its reservation price and the capital good at cost. 
B) and the consumable good at their reservation prices. 
C) and the capital good at cost. 
D) at cost and the capital good at its reservation price. 
A) at its reservation price and the capital good at cost. 
B) and the consumable good at their reservation prices. 
C) and the capital good at cost. 
D) at cost and the capital good at its reservation price.

Question 11

If the increase income from sale of a nonrenewable resource in the current period is greater than the present value of income sale of the resource in the next period, the owner should:

Accepted Answer

A) sell all of the resource now. 
B) wait to see what will happen in the future. 
C) sell all of the resource in the next period. 
D) sell some of the resource now and some in the next period. 
A) sell all of the resource now. 
B) wait to see what will happen in the future. 
C) sell all of the resource in the next period. 
D) sell some of the resource now and some in the next period.

Question 12

Nick has an income of $2000 this year and he expects an income of $1100 next year. He can borrow and lend money at an interest rate of 10%. Consumption goods cost $1 per unit this year and there is no inflation.
i)What is the present value of Nick's endowment?
ii)What is the future value of his endowment?
iii)Suppose nick has a utility of U(C0,C1)= C0C1. What is Nick's consumption in period 0? what about period 1?
iv)Suppose that the interest rate increases to 20% and that Nick's income in the second year increases to $1200. What is Nick's consumption in period 0? What about period 1?

Accepted Answer

i)PV = 3000
ii)FV =

Question 13

In equilibrium:

Accepted Answer

A) everyone with a high rate of time preference borrows. 
B) everyone with a low rate of time preference borrows. 
C) everyone has the same marginal value of current consumption. 
D) everyone has the same rate of time preference. 
A) everyone with a high rate of time preference borrows. 
B) everyone with a low rate of time preference borrows. 
C) everyone has the same marginal value of current consumption. 
D) everyone has the same rate of time preference.

Question 14

If C0 and C1 are both normal goods, for someone who borrows in the initial equilibrium, when i
Rises:

Accepted Answer

A) C0 declines. 
B) C0 increases. 
C) C0 and C1 both increase. 
D) C1 increases. 
A) C0 declines. 
B) C0 increases. 
C) C0 and C1 both increase. 
D) C1 increases.

Question 15

Suppose that the interest rate paid to those saving money increases. As a result, Chris wishes to save less. This suggests that, for Chris' new optimal level of savings, the substitution effect is greater than the income effect.

Accepted Answer

A) True 
 B)False

Question 16

Figure 5A
 
-In Figure 5A, an individual who was compensated for an increase in interest rates would find her intertemporal equilibrium at point:

Accepted Answer

A) E. 
B) A. 
C) D. 
D) E'. 
A) E. 
B) A. 
C) D. 
D) E'.

Question 17

The Separation Theorem:

Accepted Answer

A) implies that consumers maximize utility over time subject to a wealth constraint. 
B) means that individuals choose occupations independent of their consumption streams. 
C) requires that the present value of consumption expenditure exceeds the present value of income. 
D) means that firms maximize profits as a function of the preferences of consumers. 
A) implies that consumers maximize utility over time subject to a wealth constraint. 
B) means that individuals choose occupations independent of their consumption streams. 
C) requires that the present value of consumption expenditure exceeds the present value of income. 
D) means that firms maximize profits as a function of the preferences of consumers.

Question 18

The best time to log a forest is

Accepted Answer

A) when the trees have reached their maximum value 
B) when the growth rate of the trees equals the interest rate 
C) when the cost of cutting is minimized 
D) when the trees have reached their maximum height 
A) when the trees have reached their maximum value 
B) when the growth rate of the trees equals the interest rate 
C) when the cost of cutting is minimized 
D) when the trees have reached their maximum height

Question 19

The reservation price for consumer capital good depends on

Accepted Answer

A) the present value of the EV from the complementary good 
B) the marginal utility derived from the capital good 
C) the present value of the CV from the capital good 
D) consumer preferences and the price of the complementary good 
A) the present value of the EV from the complementary good 
B) the marginal utility derived from the capital good 
C) the present value of the CV from the capital good 
D) consumer preferences and the price of the complementary good

Question 20

Figure 5A
 
-In Figure 5A, the equilibrium after an interest rate increase is at point:

Accepted Answer

A) D. 
B) A. 
C) E. 
D) E'. 
A) D. 
B) A. 
C) E. 
D) E'.

The rate of interest you receive for the use of money is called the:

If C₀and C₁are both normal goods, for a person who saves in the initial equilibrium, when i rises:

A decrease in income in period 1 will:

The rate of interest that people will be willing to pay:

An individual's intertemporal budget for current consumption includes her:

If a person's marginal rate of time preference for equal amounts of consumption in the present and next periods is less than one, she is said to be:

Future values are:

According to the separation theorem, individuals choose among different income streams by choosing the one with the largest:

Firms which sell consumer capital goods are likely to sell the consumable good:

If the increase income from sale of a nonrenewable resource in the current period is greater than the present value of income sale of the resource in the next period, the owner should:

In equilibrium:

If C₀and C₁are both normal goods, for someone who borrows in the initial equilibrium, when i Rises:

Suppose that the interest rate paid to those saving money increases. As a result, Chris wishes to save less. This suggests that, for Chris' new optimal level of savings, the substitution effect is greater than the income effect.

Figure 5A -In Figure 5A, an individual who was compensated for an increase in interest rates would find her intertemporal equilibrium at point:

The Separation Theorem:

The best time to log a forest is

The reservation price for consumer capital good depends on

Figure 5A -In Figure 5A, the equilibrium after an interest rate increase is at point:

Microeconomics: a Working Methodology

A Theory of Preferences

Demand Theory

More Demand Theory

Production Cost: One Variable Input

Production Cost: Many Variable Inputs

The Theory of Perfect Competition

Applications of the Competitive Model

Monopoly

Input Markets and the Allocation of Resources

Labour Market Applications

Competitive General Equilibrium

Price Discrimination Monopoly Practices

Introduction to Game Theory

Game Theory and Oligopoly

Choice Making Under Uncertainty

Assymmetric Information, the Rules of the Game, and Externalities

The Theory of the Firm

Assymetric Information and Market Behaviour

Filters

Exam 5: Intertemporal Decision Making and Capital Values

The rate of interest you receive for the use of money is called the:

If C0 and C1 are both normal goods, for a person who saves in the initial equilibrium, when i rises:

A decrease in income in period 1 will:

The rate of interest that people will be willing to pay:

An individual's intertemporal budget for current consumption includes her:

If a person's marginal rate of time preference for equal amounts of consumption in the present and next periods is less than one, she is said to be:

Future values are:

According to the separation theorem, individuals choose among different income streams by choosing the one with the largest:

Firms which sell consumer capital goods are likely to sell the consumable good:

If the increase income from sale of a nonrenewable resource in the current period is greater than the present value of income sale of the resource in the next period, the owner should:

In equilibrium:

If C0 and C1 are both normal goods, for someone who borrows in the initial equilibrium, when i Rises:

Suppose that the interest rate paid to those saving money increases. As a result, Chris wishes to save less. This suggests that, for Chris' new optimal level of savings, the substitution effect is greater than the income effect.

Figure 5A -In Figure 5A, an individual who was compensated for an increase in interest rates would find her intertemporal equilibrium at point:

The Separation Theorem:

The best time to log a forest is

The reservation price for consumer capital good depends on

Figure 5A -In Figure 5A, the equilibrium after an interest rate increase is at point:

Microeconomics: a Working Methodology

A Theory of Preferences

Demand Theory

More Demand Theory

Production Cost: One Variable Input

Production Cost: Many Variable Inputs

The Theory of Perfect Competition

Applications of the Competitive Model

Monopoly

Input Markets and the Allocation of Resources

Labour Market Applications

Competitive General Equilibrium

Price Discrimination Monopoly Practices

Introduction to Game Theory

Game Theory and Oligopoly

Choice Making Under Uncertainty

Assymmetric Information, the Rules of the Game, and Externalities

The Theory of the Firm

Assymetric Information and Market Behaviour

Filters

If C₀and C₁are both normal goods, for a person who saves in the initial equilibrium, when i rises:

If C₀and C₁are both normal goods, for someone who borrows in the initial equilibrium, when i Rises: