Question 1

When different consumers pay different amounts of taxes,Ricardian equivalence may fail because

Accepted Answer

A)  alternative ways of collecting the same tax revenue can affect the distribution of income. 
B)  consumers can become jealous of one another. 
C)  such differences in taxes create credit market imperfections. 
D)  higher taxes on more talented people may be politically popular. 
A)  alternative ways of collecting the same tax revenue can affect the distribution of income. 
B)  consumers can become jealous of one another. 
C)  such differences in taxes create credit market imperfections. 
D)  higher taxes on more talented people may be politically popular. A

Question 2

We use a two-period model because

Accepted Answer

A)  the business cycle has two phases: contraction and recovery. 
B)  it is the simplest dynamic model. 
C)  we want to make a distinction between young and old households. 
D)  this is the horizon of the politicians that formulate policy. 
A)  the business cycle has two phases: contraction and recovery. 
B)  it is the simplest dynamic model. 
C)  we want to make a distinction between young and old households. 
D)  this is the horizon of the politicians that formulate policy. B

Question 3

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the horizontal (current consumption)intercept of the consumer's budget line is equal to

Accepted Answer

A)  we. 
B)  (1 + r)we. 
C)    
D)    
A)  we. 
B)  (1 + r)we. 
C)    
D)    A

Question 4

Macroeconomists are interested in how consumers respond to changes in the market real interest rate because

Accepted Answer

A)  interest rates are an important channel for the effects of monetary and fiscal policies. 
B)  substitution effects and income effects net out in the aggregate. 
C)  of the permanent income hypothesis. 
D)  future income affects current consumption. 
A)  interest rates are an important channel for the effects of monetary and fiscal policies. 
B)  substitution effects and income effects net out in the aggregate. 
C)  of the permanent income hypothesis. 
D)  future income affects current consumption.

Question 5

Which condition would generate a violation of the Ricardian Equivalence?

Accepted Answer

A)  downward sloping labor supply curve 
B)  underdeveloped credit markets 
C)  inflationary monetary policy 
D)  deflationary monetary policy 
A)  downward sloping labor supply curve 
B)  underdeveloped credit markets 
C)  inflationary monetary policy 
D)  deflationary monetary policy

Question 6

A permanent decrease in taxes leads to

Accepted Answer

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

Question 7

Which of the following is not a reason for the Ricardian equivalence theorem to fail to hold?

Accepted Answer

A)  tax distortions 
B)  people can borrow from the government. 
C)  finite-lived people. 
D)  credit market imperfections. 
A)  tax distortions 
B)  people can borrow from the government. 
C)  finite-lived people. 
D)  credit market imperfections.

Question 8

For a borrower in a (c,c')graph,the optimal consumption bundle is

Accepted Answer

A)  to the left of the endowment point. 
B)  to the right of the endowment point. 
C)  on the endowment point. 
D)  dependent on other factors. 
A)  to the left of the endowment point. 
B)  to the right of the endowment point. 
C)  on the endowment point. 
D)  dependent on other factors.

Question 9

If government spending does not change,an increase in the government deficit leads to

Accepted Answer

A)  an increase in current consumption. 
B)  a decrease in current consumption. 
C)  no change in current consumption. 
D)  it depends on the marginal propensity to consume. 
A)  an increase in current consumption. 
B)  a decrease in current consumption. 
C)  no change in current consumption. 
D)  it depends on the marginal propensity to consume.

Question 10

For a lender,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. 
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.

Question 11

An increase in first-period income results in

Accepted Answer

A)  an increase in first-period consumption, an increase in second-period consumption, and an increase in saving. 
B)  an increase in first-period consumption, a decrease in second-period consumption, and an increase in saving. 
C)  a decrease in first-period consumption, an increase in second-period consumption, and an increase in saving. 
D)  an increase in first-period consumption, an increase in second-period consumption, and a decrease in saving. 
A)  an increase in first-period consumption, an increase in second-period consumption, and an increase in saving. 
B)  an increase in first-period consumption, a decrease in second-period consumption, and an increase in saving. 
C)  a decrease in first-period consumption, an increase in second-period consumption, and an increase in saving. 
D)  an increase in first-period consumption, an increase in second-period consumption, and a decrease in saving.

Question 12

The Ricardian Equivalence says

Accepted Answer

A)  whatever the level of government expenses, consumption is the same. 
B)  whatever the timing of taxes, consumption is the same. 
C)  higher government expenses reduce consumption. 
D)  an increase in current consumption has to lead to a decrease in future consumption. 
A)  whatever the level of government expenses, consumption is the same. 
B)  whatever the timing of taxes, consumption is the same. 
C)  higher government expenses reduce consumption. 
D)  an increase in current consumption has to lead to a decrease in future consumption.

Question 13

An increase in the real interest rate

Accepted Answer

A)  increases savings for both borrowers and lenders. 
B)  increases savings for borrowers, but has an uncertain effect on the savings of lenders. 
C)  increases savings for lenders, but has an uncertain effect on the savings of borrowers. 
D)  has an uncertain effect on the savings of both borrowers and lenders. 
A)  increases savings for both borrowers and lenders. 
B)  increases savings for borrowers, but has an uncertain effect on the savings of lenders. 
C)  increases savings for lenders, but has an uncertain effect on the savings of borrowers. 
D)  has an uncertain effect on the savings of both borrowers and lenders.

Question 14

A temporary increase in income today leads to

Accepted Answer

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

Question 15

The Ricardian Equivalence holds only if

Accepted Answer

A)  the government is altruistic. 
B)  there are no binding credit constraints. 
C)  the government runs deficits. 
D)  the government runs surpluses. 
A)  the government is altruistic. 
B)  there are no binding credit constraints. 
C)  the government runs deficits. 
D)  the government runs surpluses.

Question 16

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. 
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.

Question 17

Why don't consumers work in the two-period model?

Accepted Answer

A)  It's a convenient simplification. 
B)  It would make no difference to the model if consumers could work. 
C)  People who participate in real-world credit markets do not work. 
D)  We don't know how to include workers in the model. 
A)  It's a convenient simplification. 
B)  It would make no difference to the model if consumers could work. 
C)  People who participate in real-world credit markets do not work. 
D)  We don't know how to include workers in the model.

Question 18

Why is it important that consumers respond differently to temporary and permanent increases in their incomes?

Accepted Answer

A)  This implies that consumption will be highly sensitive to temporary changes in income. 
B)  This implies that a temporary tax cut will have a larger effect than a permanent one on current consumption. 
C)  this tells us that the timing of income increases for consumers is irrelevant. 
D)  this has implications for the relative effects of temporary and permanent tax cuts. 
A)  This implies that consumption will be highly sensitive to temporary changes in income. 
B)  This implies that a temporary tax cut will have a larger effect than a permanent one on current consumption. 
C)  this tells us that the timing of income increases for consumers is irrelevant. 
D)  this has implications for the relative effects of temporary and permanent tax cuts.

Question 19

The endowment point is the consumption bundle in which

Accepted Answer

A)  both consumptions are the same. 
B)  current consumption equals current output less current government expenses. 
C)  no savings occur. 
D)  the interest rate equals zero. 
A)  both consumptions are the same. 
B)  current consumption equals current output less current government expenses. 
C)  no savings occur. 
D)  the interest rate equals zero.

Question 20

For a lender in a (c,c')graph,the optimal consumption bundle is

Accepted Answer

A)  to the left of the endowment point. 
B)  to the right of the endowment point. 
C)  on the endowment point. 
D)  dependent on other factors. 
A)  to the left of the endowment point. 
B)  to the right of the endowment point. 
C)  on the endowment point. 
D)  dependent on other factors.

When different consumers pay different amounts of taxes,Ricardian equivalence may fail because

We use a two-period model because

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the horizontal (current consumption)intercept of the consumer's budget line is equal to

Macroeconomists are interested in how consumers respond to changes in the market real interest rate because

Which condition would generate a violation of the Ricardian Equivalence?

A permanent decrease in taxes leads to

Which of the following is not a reason for the Ricardian equivalence theorem to fail to hold?

For a borrower in a (c,c')graph,the optimal consumption bundle is

If government spending does not change,an increase in the government deficit leads to

For a lender,an increase in the real interest rate

An increase in first-period income results in

The Ricardian Equivalence says

An increase in the real interest rate

A temporary increase in income today leads to

The Ricardian Equivalence holds only if

For a borrower,an increase in the real interest rate

Why don't consumers work in the two-period model?

Why is it important that consumers respond differently to temporary and permanent increases in their incomes?

The endowment point is the consumption bundle in which

For a lender in a (c,c')graph,the optimal consumption bundle is

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

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking

Inflation, the Phillips Curve, and Central Bank Commitment

Filters

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

When different consumers pay different amounts of taxes,Ricardian equivalence may fail because

We use a two-period model because

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the horizontal (current consumption)intercept of the consumer's budget line is equal to

Macroeconomists are interested in how consumers respond to changes in the market real interest rate because

Which condition would generate a violation of the Ricardian Equivalence?

A permanent decrease in taxes leads to

Which of the following is not a reason for the Ricardian equivalence theorem to fail to hold?

For a borrower in a (c,c')graph,the optimal consumption bundle is

If government spending does not change,an increase in the government deficit leads to

For a lender,an increase in the real interest rate

An increase in first-period income results in

The Ricardian Equivalence says

An increase in the real interest rate

A temporary increase in income today leads to

The Ricardian Equivalence holds only if

For a borrower,an increase in the real interest rate

Why don't consumers work in the two-period model?

Why is it important that consumers respond differently to temporary and permanent increases in their incomes?

The endowment point is the consumption bundle in which

For a lender in a (c,c')graph,the optimal consumption bundle is

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

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking

Inflation, the Phillips Curve, and Central Bank Commitment

Filters