Question 1

The left-hand side of the Euler equation, $$\left( c _ { \text {future } } / c _ { \text {today } } \right) = \beta ( 1 + R )$$ , represents the:

Accepted Answer

A)  growth rate of income 
B)  total lifetime consumption, in dollars 
C)  lifetime utility function 
D)  discount factor 
E)  growth rate of consumption 
A)  growth rate of income 
B)  total lifetime consumption, in dollars 
C)  lifetime utility function 
D)  discount factor 
E)  growth rate of consumption E

Question 2

Refer to the following figure when answering  
Figure 16.2: Consumption Function  
-According to the consumption function in Figure 16.2:

Accepted Answer

A)  people's lifetime utilities are equal to $u \left( c _ { 1 } \right) + u \left( c _ { 2 } \right)$ 
B)  people prefer to consume the average over their lifetimes rather than $c _ { 1 }$ and $c _ { 2 }$ 
C)  the utility associated with consuming the average over both periods is less than the average of $$u \left( c _ { 1 } \right)$$ and $u \left( c _ { 2 } \right)$ 
D)  $u ( \bar { c } ) < u \left( c _ { 1 } \right)$ 
E)  the marginal propensity to consume is greater than one 
A)  people's lifetime utilities are equal to $u \left( c _ { 1 } \right) + u \left( c _ { 2 } \right)$ 
B)  people prefer to consume the average over their lifetimes rather than $c _ { 1 }$ and $c _ { 2 }$ 
C)  the utility associated with consuming the average over both periods is less than the average of $$u \left( c _ { 1 } \right)$$ and $u \left( c _ { 2 } \right)$ 
D)  $u ( \bar { c } ) < u \left( c _ { 1 } \right)$ 
E)  the marginal propensity to consume is greater than one B

Question 3

The decline in the U.S. personal savings rate between 1980 and 2005 can be explained by:

Accepted Answer

A)  large gains in the housing and stock markets 
B)  increased company pension funds 
C)  extremely low bank saving interest rates 
D)  rising discount factors 
E)  the aging of the U.S. population 
A)  large gains in the housing and stock markets 
B)  increased company pension funds 
C)  extremely low bank saving interest rates 
D)  rising discount factors 
E)  the aging of the U.S. population A

Question 4

Behavioral economics treats all households as heterogeneous.

Accepted Answer

A) True 
 B)False

Question 5

In the special case where $\beta = 1$ , and with logarithmic utility, the Euler equation is given by:

Accepted Answer

A)  $\beta = ( 1 + R ) = 1$ 
B)  $c _ { \text {today } } = ( 1 + R ) c _ { \text {future } }$ 
C)  $c _ { \text {today } } = ( 1 + R ) c _ { \text {future } } = \beta$ 
D)  $$y _ { \text {future } } = f _ { \text {today } } = y _ { \text {todey } }$$ 
E)  $$\left( 1 / c _ { \text {todey } } \right) = ( 1 + R ) \left( 1 / c _ { \text {future } } \right)$$ 
A)  $\beta = ( 1 + R ) = 1$ 
B)  $c _ { \text {today } } = ( 1 + R ) c _ { \text {future } }$ 
C)  $c _ { \text {today } } = ( 1 + R ) c _ { \text {future } } = \beta$ 
D)  $$y _ { \text {future } } = f _ { \text {today } } = y _ { \text {todey } }$$ 
E)  $$\left( 1 / c _ { \text {todey } } \right) = ( 1 + R ) \left( 1 / c _ { \text {future } } \right)$$

Question 6

In the intertemporal budget constraint, wealth is equal to lifetime income.

Accepted Answer

A) True 
 B)False

Question 7

________ is when households save to hedge against uncertainty.

Accepted Answer

A)  Precautionary saving 
B)  Bond purchase strategy 
C)  Consumption smoothing 
D)  Utility maximization 
E)  Credit constraint 
A)  Precautionary saving 
B)  Bond purchase strategy 
C)  Consumption smoothing 
D)  Utility maximization 
E)  Credit constraint

Question 8

Suppose $\bar { X } = \$ 75,000 , \beta = 1$ , and $R = 0.05$ ) Assuming logarithmic utility, what is consumption today?

Accepted Answer

A)  $75,000 
B)  $35,714.29 
C)  $39,375 
D)  $37,500 
E)  Not enough information is given. 
A)  $75,000 
B)  $35,714.29 
C)  $39,375 
D)  $37,500 
E)  Not enough information is given.

Question 9

We can treat all households as homogeneous.

Accepted Answer

A) True 
 B)False

Question 10

The left-hand side of the Euler equation, $\left( c _ { \text {future } } / c _ { \text {todev } } \right) = \beta ( 1 + R )$ 
, represents total lifetime consumption, in dollars.

Accepted Answer

A) True 
 B)False

Question 11

From the Euler equation, if $\beta = 1$ , then ________ and ________.

Accepted Answer

A)  $c _ { \text {today } } = \bar { X } ; c _ { \text {future } } = ( 1 + R ) \cdot \bar { X }$ 
B)  $c _ { \text {fature } } = ( 3 / 4 ) \cdot \bar { X } ; c _ { \text {today } } = ( 1 / 4 ) ( 1 + R ) \cdot \bar { X }$ 
C)  $c _ { \text {today } } = ( 1 / 2 ) \cdot \bar { X } ; c _ { \text {future } } = ( 1 / 2 ) ( 1 + R ) \cdot \bar { X }$ 
D)  $c _ { \text {today } } = c _ { \text {future } } ; y _ { \text {today } } = y _ { \text {futare } } = \bar { X }$ 
E)  $c _ { \text {today } } = 0 ; c _ { \text {futare } } = \bar { X }$ 
A)  $c _ { \text {today } } = \bar { X } ; c _ { \text {future } } = ( 1 + R ) \cdot \bar { X }$ 
B)  $c _ { \text {fature } } = ( 3 / 4 ) \cdot \bar { X } ; c _ { \text {today } } = ( 1 / 4 ) ( 1 + R ) \cdot \bar { X }$ 
C)  $c _ { \text {today } } = ( 1 / 2 ) \cdot \bar { X } ; c _ { \text {future } } = ( 1 / 2 ) ( 1 + R ) \cdot \bar { X }$ 
D)  $c _ { \text {today } } = c _ { \text {future } } ; y _ { \text {today } } = y _ { \text {futare } } = \bar { X }$ 
E)  $c _ { \text {today } } = 0 ; c _ { \text {futare } } = \bar { X }$

Question 12

Because people cannot perfectly foresee income changes over their lifetimes, consumption should be predictable.

Accepted Answer

A) True 
 B)False

Question 13

The model used to explain consumption is called the ________ consumption model.

Accepted Answer

A)  Stone-Geary 
B)  Keynesian 
C)  Solow 
D)  neoclassical 
E)  classical 
A)  Stone-Geary 
B)  Keynesian 
C)  Solow 
D)  neoclassical 
E)  classical

Question 14

Consider two time periods: t and k. Which of the following would represent "today's" budget constraint?

Accepted Answer

A)  $c _ { t } = y _ { t } + y _ { k }$ 
B)  $c _ { k } = c _ { t } + ( 1 + R ) y _ { k }$ 
C)  $c _ { k } = y _ { k } \left( f _ { k } - f _ { t } \right)$ 
D)  $c _ { t } = y _ { t } - \left( f _ { k } - f _ { t } \right)$ 
E)  $c _ { t } = y _ { t } + ( 1 + R ) y _ { k }$ 
A)  $c _ { t } = y _ { t } + y _ { k }$ 
B)  $c _ { k } = c _ { t } + ( 1 + R ) y _ { k }$ 
C)  $c _ { k } = y _ { k } \left( f _ { k } - f _ { t } \right)$ 
D)  $c _ { t } = y _ { t } - \left( f _ { k } - f _ { t } \right)$ 
E)  $c _ { t } = y _ { t } + ( 1 + R ) y _ { k }$

Question 15

As a college student, you are likely to be impatient; therefore, your consumption growth rate would be:

Accepted Answer

A)  relatively slow 
B)  relatively fast 
C)  solely dependent on the amount of future income 
D)  inversely related to the interest rate 
E)  Not enough information is given. 
A)  relatively slow 
B)  relatively fast 
C)  solely dependent on the amount of future income 
D)  inversely related to the interest rate 
E)  Not enough information is given.

Question 16

If the Euler equation did not hold, then the real interest rate would be zero.

Accepted Answer

A) True 
 B)False

Question 17

Refer to the following figure when answering  
Figure 16.4: Personal Saving Rate: 1990-2010   
(Source: Federal Reserve Economic Data, St. Louis Federal Reserve)
-Consider Figure 16.4. A possible cause for the fall in the saving rate between 1990 and 2005 is:

Accepted Answer

A)  precautionary saving 
B)  consumption smoothing 
C)  the changing composition of households' savings portfolios 
D)  increasing competition among commercial banks 
E)  less access to credit markets 
A)  precautionary saving 
B)  consumption smoothing 
C)  the changing composition of households' savings portfolios 
D)  increasing competition among commercial banks 
E)  less access to credit markets

Question 18

When applied to the first President Bush's temporary tax cuts, which were repealed six months after they were implemented, Ricardian equivalence predicts that households did not boost their spending.

Accepted Answer

A) True 
 B)False

Question 19

The utility function is constructed in such a way that consumption exhibits:

Accepted Answer

A)  diminishing marginal utility 
B)  total satisfaction 
C)  a single period level of utility 
D)  total lifetime income 
E)  diminishing utility 
A)  diminishing marginal utility 
B)  total satisfaction 
C)  a single period level of utility 
D)  total lifetime income 
E)  diminishing utility

Question 20

To analyze Ricardian equivalence using the neoclassical consumption model, we must:

Accepted Answer

A)  remove taxes from the present value of wealth 
B)  include inflation in the intertemporal budget constraint 
C)  treat the discount factor as greater than one 
D)  use nominal, rather than real, interest rates 
E)  assume marginal utility is constant 
A)  remove taxes from the present value of wealth 
B)  include inflation in the intertemporal budget constraint 
C)  treat the discount factor as greater than one 
D)  use nominal, rather than real, interest rates 
E)  assume marginal utility is constant

Exam 16: Consumption

The left-hand side of the Euler equation, (cfuture /ctoday )=β(1+R)\left( c _ { \text {future } } / c _ { \text {today } } \right) = \beta ( 1 + R )(cfuture ​/ctoday ​)=β(1+R) , represents the:

Refer to the following figure when answering Figure 16.2: Consumption Function -According to the consumption function in Figure 16.2:

The decline in the U.S. personal savings rate between 1980 and 2005 can be explained by:

Behavioral economics treats all households as heterogeneous.

In the special case where β=1\beta = 1β=1 , and with logarithmic utility, the Euler equation is given by:

In the intertemporal budget constraint, wealth is equal to lifetime income.

________ is when households save to hedge against uncertainty.

Suppose Xˉ=$75,000,β=1\bar { X } = \$ 75,000 , \beta = 1Xˉ=$75,000,β=1 , and R=0.05R = 0.05R=0.05 ) Assuming logarithmic utility, what is consumption today?

We can treat all households as homogeneous.

The left-hand side of the Euler equation, (cfuture /ctodev )=β(1+R)\left( c _ { \text {future } } / c _ { \text {todev } } \right) = \beta ( 1 + R )(cfuture ​/ctodev ​)=β(1+R) , represents total lifetime consumption, in dollars.

From the Euler equation, if β=1\beta = 1β=1 , then ________ and ________.

Because people cannot perfectly foresee income changes over their lifetimes, consumption should be predictable.

The model used to explain consumption is called the ________ consumption model.

Consider two time periods: t and k. Which of the following would represent "today's" budget constraint?

As a college student, you are likely to be impatient; therefore, your consumption growth rate would be:

If the Euler equation did not hold, then the real interest rate would be zero.

Refer to the following figure when answering Figure 16.4: Personal Saving Rate: 1990-2010 (Source: Federal Reserve Economic Data, St. Louis Federal Reserve) -Consider Figure 16.4. A possible cause for the fall in the saving rate between 1990 and 2005 is:

When applied to the first President Bush's temporary tax cuts, which were repealed six months after they were implemented, Ricardian equivalence predicts that households did not boost their spending.

The utility function is constructed in such a way that consumption exhibits:

To analyze Ricardian equivalence using the neoclassical consumption model, we must:

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long-Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market, Wages, and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Dsge Models: the Frontier of Business Cycle Research

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

The left-hand side of the Euler equation, $\left( c _ { \text {future } } / c _ { \text {today } } \right) = \beta ( 1 + R )$ , represents the:

In the special case where $\beta = 1$ , and with logarithmic utility, the Euler equation is given by:

Suppose $\bar { X } = \$ 75,000 , \beta = 1$ , and $R = 0.05$ ) Assuming logarithmic utility, what is consumption today?

The left-hand side of the Euler equation, $\left( c _ { \text {future } } / c _ { \text {todev } } \right) = \beta ( 1 + R )$ , represents total lifetime consumption, in dollars.

From the Euler equation, if $\beta = 1$ , then and .