Exam 19: The Microfoundations of Consumption and Investment

What is the impact on current consumption of a temporary tax cut according to: a.the Keynesian consumption function? b.the permanent-income hypothesis?

The success of the "Save More Tomorrow" program assumes that consumers:

How do changes in wealth shift the consumption function in the long run?

Exhibit: Rental Price of Capital Based on the graph, if the capital market is initially in equilibrium at A with real rental price R₃ / P and capital stock K₂, then holding other factors constant, an improvement in technology that increases the marginal productivity of capital will move:

Graphically illustrate (1) what happens to the rental price of capital and the marginal product of capital as the stock of capital increases and (2) how the change in the marginal product of capital changes the investment demand function. Explain in words how this process will continue in the long run until the steady state is reached.

If the real rental price of capital is $10,000 per unit and the real cost of capital is $9,000 per unit, to maximize profits a firm should:

According to Franco Modigliani's life-cycle hypothesis, the time of life at which an individual should have the largest amount of wealth is at:

In equilibrium, other things being equal, all of the following changes will increase the real rental price of capital except:

Tobin's q equals the:

The corporate income tax is a tax on the:

The existence of financing constraints makes investment:

A consumer spending excessively today, intending to start saving for retirement tomorrow, but deciding to continue spending when tomorrow arrives is an example of:

Assume that the government levies a one-time-only tax on oil companies equal to a proportion of the value of the company's oil reserves. According to the neoclassical model, if firms face no financing constraints and also believe the tax will not be repeated, the effect of this tax on investment by these firms will be to:

While a rental firm is renting out its capital, the price of capital can change. What is the impact of a changed capital price on the firm?

According to Modigliani's life-cycle hypothesis, if a consumer wants equal consumption in every year and the interest rate is zero, then the marginal propensity to consume out of wealth _____ as years _____ decrease.

The real interest rate should be inversely related to investment in:

Why did Keynes's conjectures hold up well in the studies of household data and short time-series but fail when long time-series were examined?

According to Hall, consumption spending follows a random walk. a.What determines changes in consumption in this case? b.What is the implication of following a random walk for predicting changes in consumption?

Which production function do economists suggest using to see what variables influence the equilibrium rental price? Explain.

According to the permanent income hypothesis, households will finance a temporary increase in taxes by: reducing _____ or increasing _____.