Question 1

The consumer's lifetime budget constraint states that

Accepted Answer

A)  the present value of lifetime consumption must be equal to the present value of lifetime gross income. 
B)  the present value of lifetime consumption must be equal to the present value of lifetime disposable income. 
C)  the present value of lifetime consumption plus the present value of lifetime taxes to be paid must be equal to the present value of lifetime income. 
D)  the present value of lifetime taxes to be paid by the consumer must be equal to the present value of government spending. 
E)  he present value of lifetime consumption must be equal to the present value of savings. 
A)  the present value of lifetime consumption must be equal to the present value of lifetime gross income. 
B)  the present value of lifetime consumption must be equal to the present value of lifetime disposable income. 
C)  the present value of lifetime consumption plus the present value of lifetime taxes to be paid must be equal to the present value of lifetime income. 
D)  the present value of lifetime taxes to be paid by the consumer must be equal to the present value of government spending. 
E)  he present value of lifetime consumption must be equal to the present value of savings.

Question 2

The marginal rate of substitution of current consumption for future consumption is

Accepted Answer

A)  the slope of the indifference curve. 
B)  minus the slope of the difference curve. 
C)  the downward slope of the budget constraint. 
D)  the endowment point. 
E)  the slope of the lifetime budget constraint. 
A)  the slope of the indifference curve. 
B)  minus the slope of the difference curve. 
C)  the downward slope of the budget constraint. 
D)  the endowment point. 
E)  the slope of the lifetime budget constraint.

Question 3

Bonds are assumed to trade directly

Accepted Answer

A)  through the Bank of Canada. 
B)  through the federal government. 
C)  through financial intermediaries. 
D)  in the credit market. 
E)  in the stock market. 
A)  through the Bank of Canada. 
B)  through the federal government. 
C)  through financial intermediaries. 
D)  in the credit market. 
E)  in the stock market.

Question 4

For a competitive equilibrium in a two-period model,which of the following is true?

Accepted Answer

A)  Y = C + G 
B)  C = Y + S 
C)  Y = C - T 
D)  C = Y + T 
E)  Y = C + I 
A)  Y = C + G 
B)  C = Y + S 
C)  Y = C - T 
D)  C = Y + T 
E)  Y = C + I

Question 5

An important reason why Ricardian equivalence may fail is if

Accepted Answer

A)  borrowing and lending is done through intermediaries. 
B)  government debt incurred today may not be paid off until after some current consumers are deceased. 
C)  state and local governments also engage in debt finance. 
D)  some consumers are borrowers, while other consumers are lenders. 
E)  real interest rates start to increase. 
A)  borrowing and lending is done through intermediaries. 
B)  government debt incurred today may not be paid off until after some current consumers are deceased. 
C)  state and local governments also engage in debt finance. 
D)  some consumers are borrowers, while other consumers are lenders. 
E)  real interest rates start to increase.

Question 6

A consumer's budget constraint in the current period is

Accepted Answer

A)  c = y - t. 
B)  y = c + i + g. 
C)  y = c - s. 
D)  c + s = y + t. 
E)  c + s = y - t. 
A)  c = y - t. 
B)  y = c + i + g. 
C)  y = c - s. 
D)  c + s = y + t. 
E)  c + s = y - t.

Question 7

For a borrower,an increase in the real interest rate

Accepted Answer

A)  definitely reduces current consumption and increases future consumption. 
B)  reduces current consumption and has an uncertain effect on future consumption. 
C)  has an uncertain effect on current consumption and increases future consumption. 
D)  has an uncertain effect on both current and future consumption. 
E)  definitely reduces current consumption and future consumption. 
A)  definitely reduces current consumption and increases future consumption. 
B)  reduces current consumption and has an uncertain effect on future consumption. 
C)  has an uncertain effect on current consumption and increases future consumption. 
D)  has an uncertain effect on both current and future consumption. 
E)  definitely reduces current consumption and future consumption.

Question 8

The idea that a permanent increase in income causes a larger increase in consumption than a temporary change in income is called the

Accepted Answer

A)  Friedman-Lucas theory. 
B)  permanent income hypothesis. 
C)  Ricardian equivalence theorem. 
D)  intertemporal substitution effect. 
E)  steady state theorem. 
A)  Friedman-Lucas theory. 
B)  permanent income hypothesis. 
C)  Ricardian equivalence theorem. 
D)  intertemporal substitution effect. 
E)  steady state theorem.

Question 9

Ricardian equivalence is often attributed to David Ricardo and more attributed to

Accepted Answer

A)  Gerald O'Driscoll. 
B)  Adam Smith. 
C)  Milton Friedman. 
D)  Robert Barro. 
E)  Robert Lucas. 
A)  Gerald O'Driscoll. 
B)  Adam Smith. 
C)  Milton Friedman. 
D)  Robert Barro. 
E)  Robert Lucas.

Question 10

A change in the stock market is a good indicator of a change in

Accepted Answer

A)  current income. 
B)  future income. 
C)  wealth. 
D)  the future growth rate of real GDP. 
E)  current consumption. 
A)  current income. 
B)  future income. 
C)  wealth. 
D)  the future growth rate of real GDP. 
E)  current consumption.

Question 11

For a competitive equilibrium in a two-period model,which of the following is true?

Accepted Answer

A)  each consumer picks first- and second-period consumption given the real interest rate 
B)  there must be an equal number of borrowers and lenders. 
C)  the present value of government spending must be greater than the present value of taxes. 
D)  the financial market clears. 
E)  all deficits are financed by issuing debt. 
A)  each consumer picks first- and second-period consumption given the real interest rate 
B)  there must be an equal number of borrowers and lenders. 
C)  the present value of government spending must be greater than the present value of taxes. 
D)  the financial market clears. 
E)  all deficits are financed by issuing debt.

Question 12

The property of diminishing marginal rate of substitution implies that

Accepted Answer

A)  the more current consumption the consumer has, the less future consumption she is willing to give up for one more unit of current consumption. 
B)  the less current consumption the consumer has, the less future consumption she is willing to give up for one more unit of current consumption. 
C)  the more current consumption the consumer has, the more future consumption she is willing to give up for one more unit of current consumption. 
D)  the indifference curves are bowed away from the origin. 
E)  the indifference curves have a constant slope. 
A)  the more current consumption the consumer has, the less future consumption she is willing to give up for one more unit of current consumption. 
B)  the less current consumption the consumer has, the less future consumption she is willing to give up for one more unit of current consumption. 
C)  the more current consumption the consumer has, the more future consumption she is willing to give up for one more unit of current consumption. 
D)  the indifference curves are bowed away from the origin. 
E)  the indifference curves have a constant slope.

Question 13

In a two-period model,government spending is financed through

Accepted Answer

A)  taxes and transfer payments. 
B)  taxes and issuing debt. 
C)  taxes and redeeming debt. 
D)  taxes only. 
E)  issuing bonds. 
A)  taxes and transfer payments. 
B)  taxes and issuing debt. 
C)  taxes and redeeming debt. 
D)  taxes only. 
E)  issuing bonds.

Question 14

When there are credit market imperfections,an increase in government debt may be advantageous because it

Accepted Answer

A)  discourages credit-constrained consumers from borrowing too much. 
B)  increases the welfare of credit-constrained consumers. 
C)  eliminates the problems that cause credit market imperfections. 
D)  encourages more private saving. 
E)  borrow at higher interest rates than consumers. 
A)  discourages credit-constrained consumers from borrowing too much. 
B)  increases the welfare of credit-constrained consumers. 
C)  eliminates the problems that cause credit market imperfections. 
D)  encourages more private saving. 
E)  borrow at higher interest rates than consumers.

Question 15

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the slope of the consumer's budget line is equal to

Accepted Answer

A)    
B)    
C)    
D)    
E)    
A)    
B)    
C)    
D)    
E)

Question 16

The optimal consumption bundle is where

Accepted Answer

A)  c = s. 
B)  c = y - t - s. 
C)  the marginal rate of substitution in the current period equals the marginal rate of substitution in the future period. 
D)  budget constraint. 
E)  MRS = 1 = r. 
A)  c = s. 
B)  c = y - t - s. 
C)  the marginal rate of substitution in the current period equals the marginal rate of substitution in the future period. 
D)  budget constraint. 
E)  MRS = 1 = r.

Question 17

If consumers expect a tax cut to be temporary,

Accepted Answer

A)  consumption remains unchanged. 
B)  the increase in consumption will be much larger than for a permanent tax cut. 
C)  the decrease in consumption will be much smaller than for a permanent tax cut. 
D)  the overall effects are much larger than for a permanent tax cut. 
E)  the increase in consumption will be much smaller than for a permanent tax cut. 
A)  consumption remains unchanged. 
B)  the increase in consumption will be much larger than for a permanent tax cut. 
C)  the decrease in consumption will be much smaller than for a permanent tax cut. 
D)  the overall effects are much larger than for a permanent tax cut. 
E)  the increase in consumption will be much smaller than for a permanent tax cut.

Question 18

A permanent increase in income leades to

Accepted Answer

A)  a large increase in current consumption. 
B)  a small increase in current consumption. 
C)  a small decrease in future consumption. 
D)  a small increase in future consumption. 
E)  a large decrease in future consumption. 
A)  a large increase in current consumption. 
B)  a small increase in current consumption. 
C)  a small decrease in future consumption. 
D)  a small increase in future consumption. 
E)  a large decrease in future consumption.

Question 19

An increase in the real interest rate is an example of a

Accepted Answer

A)  pure substitution effect. 
B)  substitution effect and a positive income effect. 
C)  substitution effect and a negative income effect. 
D)  substitution effect and an income effect whose sign depends on whether the consumer is initially a borrower or a lender. 
E)  positive substitution effect and a negative income effect. 
A)  pure substitution effect. 
B)  substitution effect and a positive income effect. 
C)  substitution effect and a negative income effect. 
D)  substitution effect and an income effect whose sign depends on whether the consumer is initially a borrower or a lender. 
E)  positive substitution effect and a negative income effect.

Question 20

A martingale has the property that

Accepted Answer

A)  it is inherently unpredictable. 
B)  the best prediction of its value tomorrow is its value today. 
C)  the best prediction of its future growth rate is its current growth rate. 
D)  the best prediction of its value tomorrow can be computed by looking at its past behavior. 
E)  the best prediction of its value tomorrow can be computed by looking at the past two periods. 
A)  it is inherently unpredictable. 
B)  the best prediction of its value tomorrow is its value today. 
C)  the best prediction of its future growth rate is its current growth rate. 
D)  the best prediction of its value tomorrow can be computed by looking at its past behavior. 
E)  the best prediction of its value tomorrow can be computed by looking at the past two periods.

The consumer's lifetime budget constraint states that

The marginal rate of substitution of current consumption for future consumption is

Bonds are assumed to trade directly

For a competitive equilibrium in a two-period model,which of the following is true?

An important reason why Ricardian equivalence may fail is if

A consumer's budget constraint in the current period is

For a borrower,an increase in the real interest rate

The idea that a permanent increase in income causes a larger increase in consumption than a temporary change in income is called the

Ricardian equivalence is often attributed to David Ricardo and more attributed to

A change in the stock market is a good indicator of a change in

For a competitive equilibrium in a two-period model,which of the following is true?

The property of diminishing marginal rate of substitution implies that

In a two-period model,government spending is financed through

When there are credit market imperfections,an increase in government debt may be advantageous because it

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the slope of the consumer's budget line is equal to

The optimal consumption bundle is where

If consumers expect a tax cut to be temporary,

A permanent increase in income leades to

An increase in the real interest rate is an example of a

A martingale has the property that

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: The Work–Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity Among Countries and Endogenous Growth

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model with Investment

Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: A Deeper Look

Filters

Exam 9: A Two-Period Model: The Consumption–Savings Decision and Credit Markets

The consumer's lifetime budget constraint states that

The marginal rate of substitution of current consumption for future consumption is

Bonds are assumed to trade directly

For a competitive equilibrium in a two-period model,which of the following is true?

An important reason why Ricardian equivalence may fail is if

A consumer's budget constraint in the current period is

For a borrower,an increase in the real interest rate

The idea that a permanent increase in income causes a larger increase in consumption than a temporary change in income is called the

Ricardian equivalence is often attributed to David Ricardo and more attributed to

A change in the stock market is a good indicator of a change in

For a competitive equilibrium in a two-period model,which of the following is true?

The property of diminishing marginal rate of substitution implies that

In a two-period model,government spending is financed through

When there are credit market imperfections,an increase in government debt may be advantageous because it

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the slope of the consumer's budget line is equal to

The optimal consumption bundle is where

If consumers expect a tax cut to be temporary,

A permanent increase in income leades to

An increase in the real interest rate is an example of a

A martingale has the property that

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: The Work–Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity Among Countries and Endogenous Growth

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model with Investment

Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: A Deeper Look

Filters