Exam 16: Consumption and Investment

Hector's wealth is zero,he expects to work for another 45 years at a constant salary of ?$80 000 and live for another 60 years.If yearly taxes are $20 000 and Hector completely smooths consumption over his lifetime,his annual consumption is

Given a real interest rate,a decrease in taxes on saving ________ the after-tax real interest rate and ________ the incentive to save.

Figure 16.1 -Refer to Figure 16.1.An increase in the real interest rate is best represented by a movement from

Hector's wealth is zero,he expects to work for another 45 years at a constant salary of ?$80 000 and live for another 60 years.Assuming taxes are zero,if Hector receives a $20 000 bonus during his first year of work and he completely smooths consumption over his lifetime,his annual consumption is

An increase in real interest rates will ________ current consumption for households who are lenders and will ________ current consumption for households who are borrowers.

According to the permanent-income hypothesis,

The costs associated with the user cost of capital include all of the following,except

Consumption smoothing is a consequence of the

Given a decrease in the real interest rate,the income effect will be ________ for lenders and ________ for borrowers.

What is meant by the statement that investment projects are irreversible? How does the idea that investment projects are irreversible affect the volatility of investment in capital goods?

According to the life-cycle hypothesis,if a person wants consumption to be constant over her lifetime,she will smooth consumption by initially ________ over her lifetime.

Samantha's wealth is $100 000,she expects to work for another 30 years at a constant salary of $200 000 and live for another 50 years.Assume taxes are zero and that Samantha completely smooths consumption over her lifetime.Calculate the following: a. Samantha's annual consumption b. Samantha's annual consumption if she won $50 000 in the lottery during her first year of work c. Samantha's annual consumption if her lottery win paid $50 000 per year for 30 years

Hector's wealth is zero,he expects to work for another 45 years at a constant salary of ?$80 000 and live for another 60 years.If Hector receives an unexpected $20 000 increase in salary his first year of work and he completely smooths consumption over his lifetime,his marginal propensity to consume is

The real interest rate can be thought of as

The effects of tax incentive programs such as RRSP and TFSA accounts suggest that these government programs designed to increase saving lead to

Given a decrease in the real interest rate,the substitution effect will be ________ for lenders and ________ for borrowers.

The expected real cost to a firm of using an additional unit of capital during a period of time is the

The income and substitution effects move in ________ for lenders and in ________ for borrowers.

The Vuvuza Corporation currently has 10 million shares of stock outstanding,the stock is trading for $42 per share,and its stock of capital goods is valued at $70 million.Based on the Tobin's q value for the Vuvuza Corporation,we would expect Vuvuza to

A firm maximizes profits when the ________ equals the ________.