Question 1

John Maynard Keynes believed that:

Accepted Answer

A)  consumers would save more if the interest rate was high. 
B)  consumers would consume more if the interest rate was high. 
C)  if consumers consume less, the interest rate will be high. 
D)  the interest rate is relatively unimportant to the consumption decision. 
A)  consumers would save more if the interest rate was high. 
B)  consumers would consume more if the interest rate was high. 
C)  if consumers consume less, the interest rate will be high. 
D)  the interest rate is relatively unimportant to the consumption decision.

Question 2

What is an intertemporal budget constraint?

Accepted Answer

An intertemporal budget constr

Question 3

In Irving Fisher's two-period model, consumption for a consumer with a binding borrowing constraint equals an amount that is:

Accepted Answer

A)  equal to current income. 
B)  greater than current income. 
C)  equal to future income. 
D)  greater than future income. 
A)  equal to current income. 
B)  greater than current income. 
C)  equal to future income. 
D)  greater than future income.

Question 4

In Irving Fisher's two-period model, if the consumer is initially a saver and the interest rate and first-period consumption increase, then we can conclude that the income effect:

Accepted Answer

A)  was greater than the substitution effect. 
B)  was less than the substitution effect. 
C)  exactly offset the substitution effect. 
D)  and the substitution both increased consumption. 
A)  was greater than the substitution effect. 
B)  was less than the substitution effect. 
C)  exactly offset the substitution effect. 
D)  and the substitution both increased consumption.

Question 5

Use the following to answer questions :
Exhibit: Residential Investment  
-(Exhibit: Budget Constraint) Based on the graph, if Y1 and Y2 represent income in period one and period two, respectively, r is the interest rate, and the consumer chooses to consume combination A on the budget constraint, what will be the level of consumption in period two, C2?

Accepted Answer

A)  Y1(1 + r) + Y2 
B)  Y1 + Y2/(1 + r) 
C)  Y1/(1 + r) + Y2 
D)  Y1 + Y2(1 + r) 
A)  Y1(1 + r) + Y2 
B)  Y1 + Y2/(1 + r) 
C)  Y1/(1 + r) + Y2 
D)  Y1 + Y2(1 + r)

Question 6

The determination of consumption as a function of current disposable income is most strongly associated with:

Accepted Answer

A)  John Maynard Keynes. 
B)  Irving Fisher. 
C)  Franco Modigliani. 
D)  Milton Friedman. 
A)  John Maynard Keynes. 
B)  Irving Fisher. 
C)  Franco Modigliani. 
D)  Milton Friedman.

Question 7

In Irving Fisher's two-period model, if the consumer is initially saving in period one and the real interest rate rises, then:

Accepted Answer

A)  both the income and substitution effects will make the consumer want to consume less in period one. 
B)  both the income and substitution effects will make the consumer want to consume more in period one. 
C)  the substitution effect will make the consumer want to consume less in period one but the income effect will make him or her want to consume more. 
D)  the income effect will make the consumer want to consume less in period one, but the substitution effect will make him or her want to consume more. 
A)  both the income and substitution effects will make the consumer want to consume less in period one. 
B)  both the income and substitution effects will make the consumer want to consume more in period one. 
C)  the substitution effect will make the consumer want to consume less in period one but the income effect will make him or her want to consume more. 
D)  the income effect will make the consumer want to consume less in period one, but the substitution effect will make him or her want to consume more.

Question 8

Illustrate the use of discounting in the consumer budget constraint.

Accepted Answer

The use of discounting in the consumer b

Question 9

The pull of instant gratification may lead consumers to save ______ they would like to save.

Accepted Answer

A)  more than 
B)  less than 
C)  approximately the amount 
D)  precisely the amount 
A)  more than 
B)  less than 
C)  approximately the amount 
D)  precisely the amount

Question 10

How do changes in wealth shift the consumption function in the long run?

Accepted Answer

If consumption depends on wealth, then a

Question 11

During World War II, economists using John Maynard Keynes's theory predicted that the rate of saving after the war would be very:

Accepted Answer

A)  high, and that is what happened. 
B)  low, and that is what happened. 
C)  low, but that did not happen. 
D)  high, but that did not happen. 
A)  high, and that is what happened. 
B)  low, and that is what happened. 
C)  low, but that did not happen. 
D)  high, but that did not happen.

Question 12

Whether workers must "opt into" or "opt out of" a retirement savings plan ______ make a difference if workers are rational optimizers and ______ make a difference if workers' behavior exhibits inertia.

Accepted Answer

A)  would; would 
B)  would not; would not 
C)  would; would not 
D)  would not; would 
A)  would; would 
B)  would not; would not 
C)  would; would not 
D)  would not; would

Question 13

Franco Modigliani's answer to Simon Kuznets's puzzle regarding long-term constancy of the average propensity to consume is that:

Accepted Answer

A)  the average propensity to consume depends on the wealth-to-income ratio, and income and wealth tend to grow together over time. 
B)  both rich and poor individuals have the same average propensity to consume. 
C)  demographic shifts have acted to just cancel out movements in the average propensity to consume. 
D)  every consumer consumes all of his or her income over a lifetime, so the average propensity to consume is constant at one. 
A)  the average propensity to consume depends on the wealth-to-income ratio, and income and wealth tend to grow together over time. 
B)  both rich and poor individuals have the same average propensity to consume. 
C)  demographic shifts have acted to just cancel out movements in the average propensity to consume. 
D)  every consumer consumes all of his or her income over a lifetime, so the average propensity to consume is constant at one.

Question 14

The adequacy of retirement savings is an important public policy issue. Many tax-favored retirement plans impose tax penalties on any withdrawals from retirement savings plans before a worker reaches a particular age, such as $$59   1/ 2$$ . However, in some cases workers at an earlier age get access to their savings with no withdrawal penalties when they change employers. Many workers in this situation spend their accumulated retirement savings on current consumption. Assuming that the worker is merely changing jobs with no change in expected future income, is this behavior consistent with the life-cycle/permanent-income hypothesis? Explain why or why not and offer an alternative explanation based on behavioral economics.

Accepted Answer

No, this behavior is not consistent with

Question 15

Consumption is said to follow a random walk if:

Accepted Answer

A)  consumers have rational expectations. 
B)  consumption is proportional to permanent income. 
C)  changes in consumption are unpredictable. 
D)  changes in consumption produce secular stagnation. 
A)  consumers have rational expectations. 
B)  consumption is proportional to permanent income. 
C)  changes in consumption are unpredictable. 
D)  changes in consumption produce secular stagnation.

Question 16

If consumers correctly anticipate their future incomes:

Accepted Answer

A)  the saving rate will be high when consumers anticipate a boom. 
B)  the saving rate will be low when consumers anticipate a boom. 
C)  the saving rate will be low when consumers anticipate a recession. 
D)  they will be disappointed because future income can never be correctly forecasted. 
A)  the saving rate will be high when consumers anticipate a boom. 
B)  the saving rate will be low when consumers anticipate a boom. 
C)  the saving rate will be low when consumers anticipate a recession. 
D)  they will be disappointed because future income can never be correctly forecasted.

Question 17

What are the two anomalies that arose against Keynes's conjecture that the average propensity to consume falls as income rises?

Accepted Answer

The first anomaly arose during World War

Question 18

John Maynard Keynes believed that the marginal propensity to consume:

Accepted Answer

A)  was zero. 
B)  was between zero and one. 
C)  was one. 
D)  increased as income increased. 
A)  was zero. 
B)  was between zero and one. 
C)  was one. 
D)  increased as income increased.

Question 19

Franco Modigliani's life-cycle hypothesis puts great emphasis on saving for:

Accepted Answer

A)  a house. 
B)  a car. 
C)  retirement. 
D)  medical emergencies. 
A)  a house. 
B)  a car. 
C)  retirement. 
D)  medical emergencies.

Question 20

Which of the following conjectures that underlie the Keynesian consumption function is not consistent with aggregate U.S. data?

Accepted Answer

A)  The marginal propensity to consume is between 0 and 1. 
B)  The average propensity to consume decreases as income increases. 
C)  There is a high correlation between income and consumption. 
D)  Current income is a determinant of consumption. 
A)  The marginal propensity to consume is between 0 and 1. 
B)  The average propensity to consume decreases as income increases. 
C)  There is a high correlation between income and consumption. 
D)  Current income is a determinant of consumption.

John Maynard Keynes believed that:

What is an intertemporal budget constraint?

In Irving Fisher's two-period model, consumption for a consumer with a binding borrowing constraint equals an amount that is:

In Irving Fisher's two-period model, if the consumer is initially a saver and the interest rate and first-period consumption increase, then we can conclude that the income effect:

The determination of consumption as a function of current disposable income is most strongly associated with:

In Irving Fisher's two-period model, if the consumer is initially saving in period one and the real interest rate rises, then:

Illustrate the use of discounting in the consumer budget constraint.

The pull of instant gratification may lead consumers to save ______ they would like to save.

How do changes in wealth shift the consumption function in the long run?

During World War II, economists using John Maynard Keynes's theory predicted that the rate of saving after the war would be very:

Whether workers must "opt into" or "opt out of" a retirement savings plan make a difference if workers are rational optimizers and make a difference if workers' behavior exhibits inertia.

Franco Modigliani's answer to Simon Kuznets's puzzle regarding long-term constancy of the average propensity to consume is that:

Consumption is said to follow a random walk if:

If consumers correctly anticipate their future incomes:

What are the two anomalies that arose against Keynes's conjecture that the average propensity to consume falls as income rises?

John Maynard Keynes believed that the marginal propensity to consume:

Franco Modigliani's life-cycle hypothesis puts great emphasis on saving for:

Which of the following conjectures that underlie the Keynesian consumption function is not consistent with aggregate U.S. data?

The Science of Macroeconomics

The Data of Macroeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labor Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand Ii: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

The Theory of Investment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

Filters

Exam 16: Understanding Consumer Behavior

John Maynard Keynes believed that:

What is an intertemporal budget constraint?

In Irving Fisher's two-period model, consumption for a consumer with a binding borrowing constraint equals an amount that is:

In Irving Fisher's two-period model, if the consumer is initially a saver and the interest rate and first-period consumption increase, then we can conclude that the income effect:

The determination of consumption as a function of current disposable income is most strongly associated with:

In Irving Fisher's two-period model, if the consumer is initially saving in period one and the real interest rate rises, then:

Illustrate the use of discounting in the consumer budget constraint.

The pull of instant gratification may lead consumers to save ______ they would like to save.

How do changes in wealth shift the consumption function in the long run?

During World War II, economists using John Maynard Keynes's theory predicted that the rate of saving after the war would be very:

Whether workers must "opt into" or "opt out of" a retirement savings plan ______ make a difference if workers are rational optimizers and ______ make a difference if workers' behavior exhibits inertia.

Franco Modigliani's answer to Simon Kuznets's puzzle regarding long-term constancy of the average propensity to consume is that:

Consumption is said to follow a random walk if:

If consumers correctly anticipate their future incomes:

What are the two anomalies that arose against Keynes's conjecture that the average propensity to consume falls as income rises?

John Maynard Keynes believed that the marginal propensity to consume:

Franco Modigliani's life-cycle hypothesis puts great emphasis on saving for:

Which of the following conjectures that underlie the Keynesian consumption function is not consistent with aggregate U.S. data?

The Science of Macroeconomics

The Data of Macroeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labor Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand Ii: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

The Theory of Investment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

Filters

Whether workers must "opt into" or "opt out of" a retirement savings plan make a difference if workers are rational optimizers and make a difference if workers' behavior exhibits inertia.