Exam 19: The Microfoundations of Consumption and Investment

Whether workers must "opt into" or "opt out of" a retirement savings plan _____ make a difference if workers are rational optimizers and _____ make a difference if workers' behaviour exhibits inertia.

Examination of data from households shows that households with high current income _____ than do households with low current income.

A binding borrowing constraint will _____ the potency of an announced future tax cut to influence aggregate demand but will _____ the potency of a temporary tax cut.

Describe the relationship between the business fixed investment and interest rate in an investment function.

Briefly explain the neoclassical model of investment.

What are the economic incentives that lie behind rental firms' investment decisions?

Explain the relationship between the marginal product of capital and the total amount of capital. What decision should production firms make in order to maximize their profit?

According to the life-cycle model, the average propensity to consume does not fall as income increases in the long run because:

During a financial crisis, such as the Great Depression or the U.S. recession of 2008-2009, financing constraints become _____ prevalent and investment spending _____.

Use the neoclassical model of business fixed investment to illustrate graphically how a plague that kills a large proportion of the labour force would change the rental price of capital. If other factors remained unchanged, how would this change the quantity of investment in the economy?

Kuznets' findings were consistent with a short-run consumption function with a _____ APC, and a long-run consumption function with a _____ APC.

Recent research by Laibson and other economists recognizes the importance of incorporating _____ effects into the study of consumer behaviour.

If firms are earning a profit from installed capital, then this raises the _____ value of installed capital and implies a _____ value of Tobin's q.

Some taxpayers voluntarily have more taxes withheld from their paycheques during the year in order to receive a large tax refund once a year. These taxpayers give the government an interest-free loan and lose the interest they could have earned by saving a portion of the larger paycheques they would have received during the year. Why might a person make this choice? What does this choice say about the theory of the consumption function?

_____ is a share of ownership in a corporation, and the _____ market is the market where these shares are traded.

The distinction between current income and expected future income is a critical distinction among the six theories of consumption. Which theories place greater emphasis on current income, and which theories place greater emphasis on future expected income? Why does this distinction matter for economic policymakers?

If Tobin's q is greater than 1, then managers should:

Explain briefly the types of investment spending.

Empirical studies of Franco Modigliani's life-cycle hypothesis show that:

According to the life-cycle model, when wealth is constant in the short run, the average propensity to consume _____ as income increases.