Question 1

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)  allows credit-constrained consumers to consume more. 
C)  eliminates the problems that cause credit-market imperfections. 
D)  encourages more private saving. 
A)  discourages credit-constrained consumers from borrowing too much. 
B)  allows credit-constrained consumers to consume more. 
C)  eliminates the problems that cause credit-market imperfections. 
D)  encourages more private saving. B

Question 2

Consumer choice theory predicts that,with identical consumers,pay-as-you-go social security

Accepted Answer

A)  always makes all generations worse off. 
B)  makes some generations better off, and cannot make any generation worse off. 
C)  may make some generations worse off and cannot make any generation better off. 
D)  may be Pareto improving. 
A)  always makes all generations worse off. 
B)  makes some generations better off, and cannot make any generation worse off. 
C)  may make some generations worse off and cannot make any generation better off. 
D)  may be Pareto improving. D

Question 3

Why do consumers benefit from pay-as-you-go social security?

Accepted Answer

A)  It keeps inflation in check as money is redistributed. 
B)  It is a better way than taxes to finance the government. 
C)  It forces people to save more than they would otherwise. 
D)  With sufficiently high population growth, many young contribute to the benefits of the old. 
A)  It keeps inflation in check as money is redistributed. 
B)  It is a better way than taxes to finance the government. 
C)  It forces people to save more than they would otherwise. 
D)  With sufficiently high population growth, many young contribute to the benefits of the old. D

Question 4

In the two-period model,the budget constraint is kinked for all of these reasons,except

Accepted Answer

A)  the real interest rate is greater than zero. 
B)  there are costs to banks from lending and borrowing. 
C)  there is asymmetric information in the credit market. 
D)  there is limited commitment in the credit market. 
A)  the real interest rate is greater than zero. 
B)  there are costs to banks from lending and borrowing. 
C)  there is asymmetric information in the credit market. 
D)  there is limited commitment in the credit market.

Question 5

In the two-period model with asymmetric information,a one-unit increase in the real rate of interest on bank deposits

Accepted Answer

A)  causes the real loan interest rate to increase by more than one unit. 
B)  causes the real loan interest rate to increase by less than one unit. 
C)  cause the real loan interest rate to decrease by less than one unit. 
D)  causes the real loan interest rate to decrease by more than one unit. 
A)  causes the real loan interest rate to increase by more than one unit. 
B)  causes the real loan interest rate to increase by less than one unit. 
C)  cause the real loan interest rate to decrease by less than one unit. 
D)  causes the real loan interest rate to decrease by more than one unit.

Question 6

Pay-as-you-go social security

Accepted Answer

A)  can never improve economic welfare for everyone. 
B)  can improve welfare for everyone if the population growth rate is large enough. 
C)  is always inefficient. 
D)  is not used by any countries in the world. 
A)  can never improve economic welfare for everyone. 
B)  can improve welfare for everyone if the population growth rate is large enough. 
C)  is always inefficient. 
D)  is not used by any countries in the world.

Question 7

When there are credit market frictions,Ricardian equivalence may not hold because

Accepted Answer

A)  consumers cannot understand the implications of the government budget constraint. 
B)  a tax cut in the present with a future increase in taxes works effectively like a loan. 
C)  an increase in government saving is matched one-for-one by a decrease in private saving. 
D)  social security is fully-funded. 
A)  consumers cannot understand the implications of the government budget constraint. 
B)  a tax cut in the present with a future increase in taxes works effectively like a loan. 
C)  an increase in government saving is matched one-for-one by a decrease in private saving. 
D)  social security is fully-funded.

Question 8

An interest rate spread is

Accepted Answer

A)  the difference between long-term and short-term interest rates. 
B)  the difference between nominal and real interest rates. 
C)  the difference between lending and borrowing interest rates. 
D)  the difference between public and commercial interest rates. 
A)  the difference between long-term and short-term interest rates. 
B)  the difference between nominal and real interest rates. 
C)  the difference between lending and borrowing interest rates. 
D)  the difference between public and commercial interest rates.

Question 9

In the two-period model with asymmetric information,a bank

Accepted Answer

A)  creates money. 
B)  keeps money safely. 
C)  multiplies reserves. 
D)  borrows and lends. 
A)  creates money. 
B)  keeps money safely. 
C)  multiplies reserves. 
D)  borrows and lends.

Question 10

For a consumer not bound by the collateral constraint,a reduction in the price of the collateral leads to

Accepted Answer

A)  nothing. 
B)  an increase in current consumption and a decrease in future consumption. 
C)  a decrease in current consumption and no change in future consumption. 
D)  a decrease in current and future consumption. 
A)  nothing. 
B)  an increase in current consumption and a decrease in future consumption. 
C)  a decrease in current consumption and no change in future consumption. 
D)  a decrease in current and future consumption.

Question 11

In a frictionless world

Accepted Answer

A)  Fully funded social security must necessarily make everyone better off, as it provides for retirement. 
B)  Fully-funded social security is a constraint on private saving behavior, and therefore cannot make anyone better off. 
C)  Fully funded social security is always preferred to pay-as-you-go social security. 
D)  Fully funded social security is more efficient, because it is a private program instead of a government program. 
A)  Fully funded social security must necessarily make everyone better off, as it provides for retirement. 
B)  Fully-funded social security is a constraint on private saving behavior, and therefore cannot make anyone better off. 
C)  Fully funded social security is always preferred to pay-as-you-go social security. 
D)  Fully funded social security is more efficient, because it is a private program instead of a government program.

Question 12

In a fully-funded social security program

Accepted Answer

A)  the young pay for the benefits of the old. 
B)  the young are forced to save for their own retirement. 
C)  the young have to buy bonds for the old. 
D)  the young are forced to save for the retirement of the old. 
A)  the young pay for the benefits of the old. 
B)  the young are forced to save for their own retirement. 
C)  the young have to buy bonds for the old. 
D)  the young are forced to save for the retirement of the old.

Question 13

Limited commitment means

Accepted Answer

A)  one cannot credibly promise something. 
B)  one saves only part of what is optimal. 
C)  only some households are allowed to save. 
D)  there is rationing on the credit market. 
A)  one cannot credibly promise something. 
B)  one saves only part of what is optimal. 
C)  only some households are allowed to save. 
D)  there is rationing on the credit market.

Question 14

In the two-period model with limited commitment,if the collateral constraint binds

Accepted Answer

A)  increases in the present value of collateral increase current consumption and reduce future consumption. 
B)  increases in the present value of collateral increase current consumption one-for-one. 
C)  increases in the present value of collateral decrease current consumption and increase future consumption. 
D)  increases in the present value of collateral increase current consumption less than one-for-one. 
A)  increases in the present value of collateral increase current consumption and reduce future consumption. 
B)  increases in the present value of collateral increase current consumption one-for-one. 
C)  increases in the present value of collateral decrease current consumption and increase future consumption. 
D)  increases in the present value of collateral increase current consumption less than one-for-one.

Question 15

If the proportion of bad borrowers increases,

Accepted Answer

A)  the lending interest rate increases. 
B)  the lending interest rate decreases. 
C)  the borrowing interest rate increases. 
D)  the borrowing interest rate decreases. 
A)  the lending interest rate increases. 
B)  the lending interest rate decreases. 
C)  the borrowing interest rate increases. 
D)  the borrowing interest rate decreases.

Question 16

Collateral is used in all of the following credit arrangements,except

Accepted Answer

A)  repurchase agreements. 
B)  automobile loans. 
C)  credit card lending. 
D)  mortgage lending. 
A)  repurchase agreements. 
B)  automobile loans. 
C)  credit card lending. 
D)  mortgage lending.

Question 17

For a consumer bound by the collateral constraint,a reduction in the price of the collateral leads to

Accepted Answer

A)  nothing. 
B)  an increase in current consumption and a decrease in future consumption. 
C)  a decrease in current consumption and no change in future consumption. 
D)  a decrease in current and future consumption. 
A)  nothing. 
B)  an increase in current consumption and a decrease in future consumption. 
C)  a decrease in current consumption and no change in future consumption. 
D)  a decrease in current and future consumption.

Question 18

Collateralizable wealth is

Accepted Answer

A)  wealth in non-tangible assets. 
B)  any asset that can be used to obtain a loan. 
C)  wealth that increases and income increases. 
D)  wealth based on mortgage lending. 
A)  wealth in non-tangible assets. 
B)  any asset that can be used to obtain a loan. 
C)  wealth that increases and income increases. 
D)  wealth based on mortgage lending.

Question 19

In the two-period model with asymmetric information,the presence of bad borrowers who always default

Accepted Answer

A)  makes good borrowers better off. 
B)  matters only for the loan interest rate faced by bad borrowers. 
C)  affects the equilibrium profits of banks. 
D)  affects good borrowers adversely. 
A)  makes good borrowers better off. 
B)  matters only for the loan interest rate faced by bad borrowers. 
C)  affects the equilibrium profits of banks. 
D)  affects good borrowers adversely.

Question 20

The phenomenon that some consumers pay a higher interest rate when they borrow than the interest rate they receive when they lend is best described as an example of

Accepted Answer

A)  irrational behavior. 
B)  a credit market imperfection. 
C)  a vast banking conspiracy. 
D)  the burden of public debt. 
A)  irrational behavior. 
B)  a credit market imperfection. 
C)  a vast banking conspiracy. 
D)  the burden of public debt.

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

Consumer choice theory predicts that,with identical consumers,pay-as-you-go social security

Why do consumers benefit from pay-as-you-go social security?

In the two-period model,the budget constraint is kinked for all of these reasons,except

In the two-period model with asymmetric information,a one-unit increase in the real rate of interest on bank deposits

Pay-as-you-go social security

When there are credit market frictions,Ricardian equivalence may not hold because

An interest rate spread is

In the two-period model with asymmetric information,a bank

For a consumer not bound by the collateral constraint,a reduction in the price of the collateral leads to

In a frictionless world

In a fully-funded social security program

Limited commitment means

In the two-period model with limited commitment,if the collateral constraint binds

If the proportion of bad borrowers increases,

Collateral is used in all of the following credit arrangements,except

For a consumer bound by the collateral constraint,a reduction in the price of the collateral leads to

Collateralizable wealth is

In the two-period model with asymmetric information,the presence of bad borrowers who always default

The phenomenon that some consumers pay a higher interest rate when they borrow than the interest rate they receive when they lend is best described as an example of

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

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

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

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

Consumer choice theory predicts that,with identical consumers,pay-as-you-go social security

Why do consumers benefit from pay-as-you-go social security?

In the two-period model,the budget constraint is kinked for all of these reasons,except

In the two-period model with asymmetric information,a one-unit increase in the real rate of interest on bank deposits

Pay-as-you-go social security

When there are credit market frictions,Ricardian equivalence may not hold because

An interest rate spread is

In the two-period model with asymmetric information,a bank

For a consumer not bound by the collateral constraint,a reduction in the price of the collateral leads to

In a frictionless world

In a fully-funded social security program

Limited commitment means

In the two-period model with limited commitment,if the collateral constraint binds

If the proportion of bad borrowers increases,

Collateral is used in all of the following credit arrangements,except

For a consumer bound by the collateral constraint,a reduction in the price of the collateral leads to

Collateralizable wealth is

In the two-period model with asymmetric information,the presence of bad borrowers who always default

The phenomenon that some consumers pay a higher interest rate when they borrow than the interest rate they receive when they lend is best described as an example of

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

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

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