Question 1

Examination of data from households shows that households with high current income ______ than do households with low current income.

Accepted Answer

A)  consume less 
B)  save less 
C)  save a smaller fraction of current income 
D)  save a larger fraction of current income 
A)  consume less 
B)  save less 
C)  save a smaller fraction of current income 
D)  save a larger fraction of current income

Question 2

An increase in income in period one in Irving Fisher's two-period consumption model increases consumption in:

Accepted Answer

A)  period one, but decreases consumption in period two. 
B)  period one, but does not change consumption in period two. 
C)  both periods one and two, as long as consumption in period one and consumption in period two are both normal goods. 
D)  period two, but does not change consumption in period one. 
A)  period one, but decreases consumption in period two. 
B)  period one, but does not change consumption in period two. 
C)  both periods one and two, as long as consumption in period one and consumption in period two are both normal goods. 
D)  period two, but does not change consumption in period one.

Question 3

The marginal propensity to consume is the:

Accepted Answer

A)  ratio of consumption to income. 
B)  amount consumed out of an additional dollar of income. 
C)  amount available for consumption after precautionary saving. 
D)  ratio of consumption to wealth. 
A)  ratio of consumption to income. 
B)  amount consumed out of an additional dollar of income. 
C)  amount available for consumption after precautionary saving. 
D)  ratio of consumption to wealth.

Question 4

Explain the controversial views held by the classical economists and Keynes about the determinant of consumption.

Accepted Answer

Keynes thought that income is the primar

Question 5

Keynes's conclusion is quite different from that of Fisher's model of consumption. Explain how.

Accepted Answer

Keynes posited that a person's current c

Question 6

Kuznets' data showed a short-run consumption function with a ______ APC, and a long-run consumption function with a ______ APC.

Accepted Answer

A)  constant; constant 
B)  constant; falling 
C)  falling; constant 
D)  falling; falling 
A)  constant; constant 
B)  constant; falling 
C)  falling; constant 
D)  falling; falling

Question 7

In the Fisher two-period model, if the consumer is a saver, consumption in periods one and two are normal goods, and the income effect of an increase in interest rate is less than the substitution effect, then saving:

Accepted Answer

A)  will increase. 
B)  will decrease. 
C)  will not change. 
D)  may either increase or decrease. 
A)  will increase. 
B)  will decrease. 
C)  will not change. 
D)  may either increase or decrease.

Question 8

The consumption decisions of individuals are not important for the:

Accepted Answer

A)  determination of the steady-state capital stock. 
B)  determination of fiscal-policy multipliers. 
C)  determination of aggregate demand. 
D)  determination of sticky prices. 
A)  determination of the steady-state capital stock. 
B)  determination of fiscal-policy multipliers. 
C)  determination of aggregate demand. 
D)  determination of sticky prices.

Question 9

Some taxpayers voluntarily have more taxes withheld from their paychecks during the year in order to receive a large tax refund once a year. These taxpayers give the government an interest-free loan and lose the interest they could have earned by saving a portion of the larger paychecks they would have received during the year. Why might a person make this choice? What does this choice say about the theory of the consumption function?

Accepted Answer

Taxpayers who face the "pull of instant

Question 10

Empirical evidence finds that the average propensity to consume is constant:

Accepted Answer

A)  for only the short-run consumption function. 
B)  for only the long-run consumption function. 
C)  for both the short-run and the long-run consumption functions. 
D)  for neither the short-run nor the long-run consumption functions. 
A)  for only the short-run consumption function. 
B)  for only the long-run consumption function. 
C)  for both the short-run and the long-run consumption functions. 
D)  for neither the short-run nor the long-run consumption functions.

Question 11

Suppose that the Federal Reserve raises the interest rate at which the average household can borrow and lend. Assume that the typical household behaves according to Irving Fisher's two-period model, that consumption in both periods is a normal good, and that households are initially borrowers. Illustrate graphically how the increase in the interest rate in period one affects consumption in both periods.

Accepted Answer

@#IMG-DLM& In this drawing both C₁ and C₂ decrease.

Question 12

According to the permanent-income hypothesis, consumption depends primarily on ______ income.

Accepted Answer

A)  current 
B)  nominal 
C)  permanent 
D)  transitory 
A)  current 
B)  nominal 
C)  permanent 
D)  transitory

Question 13

If the permanent-income hypothesis is correct, and if consumers have rational expectations, then changes in consumption over time should be:

Accepted Answer

A)  predictable. 
B)  unpredictable. 
C)  mostly positive. 
D)  mostly negative. 
A)  predictable. 
B)  unpredictable. 
C)  mostly positive. 
D)  mostly negative.

Question 14

Empirical evidence finds that the average propensity to consume is falling:

Accepted Answer

A)  for only the short-run consumption function. 
B)  for only the long-run consumption function. 
C)  for both the short-run and the long-run consumption functions. 
D)  for neither the short-run nor the long-run consumption functions. 
A)  for only the short-run consumption function. 
B)  for only the long-run consumption function. 
C)  for both the short-run and the long-run consumption functions. 
D)  for neither the short-run nor the long-run consumption functions.

Question 15

The Fisher two-period model shows that current consumption depends on:

Accepted Answer

A)  only current income. 
B)  only future income. 
C)  current income, future income, and the interest rate. 
D)  current income, future income, the interest rate, and the rate of inflation. 
A)  only current income. 
B)  only future income. 
C)  current income, future income, and the interest rate. 
D)  current income, future income, the interest rate, and the rate of inflation.

Question 16

Every indifference curve shows combinations of first-period and second-period consumption that:

Accepted Answer

A)  are tangent to the intertemporal budget constraint. 
B)  have equal income and substitution effects. 
C)  are available to the consumer. 
D)  make the consumer equally happy. 
A)  are tangent to the intertemporal budget constraint. 
B)  have equal income and substitution effects. 
C)  are available to the consumer. 
D)  make the consumer equally happy.

Question 17

The Keynesian consumption function exhibits all of the following properties except that:

Accepted Answer

A)  the marginal propensity to consume is between 0 and 1. 
B)  the average propensity to consume decreases as income increases. 
C)  only unexpected policy changes influence consumption. 
D)  current income is the primary 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)  only unexpected policy changes influence consumption. 
D)  current income is the primary determinant of consumption.

Question 18

The success of the "Save More Tomorrow" program is based on the assumption that consumers:

Accepted Answer

A)  smooth consumption over their life cycles. 
B)  save a constant fraction of their permanent incomes. 
C)  require help controlling their desires for instant gratification. 
D)  save only their transitory incomes. 
A)  smooth consumption over their life cycles. 
B)  save a constant fraction of their permanent incomes. 
C)  require help controlling their desires for instant gratification. 
D)  save only their transitory incomes.

Question 19

If a consumer cannot borrow, then consumption in period one must be ______ income in period(s) _____.

Accepted Answer

A)  less than; one 
B)  less than or equal to; one 
C)  less than; one and two 
D)  less than or equal to; one and two 
A)  less than; one 
B)  less than or equal to; one 
C)  less than; one and two 
D)  less than or equal to; one and two

Question 20

Permanent and transitory incomes differ in the way that permanent income is ______ than is transitory income.

Accepted Answer

A)  larger 
B)  more persistent 
C)  taxed at a higher rate 
D)  more variable 
A)  larger 
B)  more persistent 
C)  taxed at a higher rate 
D)  more variable

Examination of data from households shows that households with high current income ______ than do households with low current income.

An increase in income in period one in Irving Fisher's two-period consumption model increases consumption in:

The marginal propensity to consume is the:

Explain the controversial views held by the classical economists and Keynes about the determinant of consumption.

Keynes's conclusion is quite different from that of Fisher's model of consumption. Explain how.

Kuznets' data showed a short-run consumption function with a APC, and a long-run consumption function with a APC.

In the Fisher two-period model, if the consumer is a saver, consumption in periods one and two are normal goods, and the income effect of an increase in interest rate is less than the substitution effect, then saving:

The consumption decisions of individuals are not important for the:

Empirical evidence finds that the average propensity to consume is constant:

According to the permanent-income hypothesis, consumption depends primarily on ______ income.

If the permanent-income hypothesis is correct, and if consumers have rational expectations, then changes in consumption over time should be:

Empirical evidence finds that the average propensity to consume is falling:

The Fisher two-period model shows that current consumption depends on:

Every indifference curve shows combinations of first-period and second-period consumption that:

The Keynesian consumption function exhibits all of the following properties except that:

The success of the "Save More Tomorrow" program is based on the assumption that consumers:

If a consumer cannot borrow, then consumption in period one must be __ income in period(s) _.

Permanent and transitory incomes differ in the way that permanent income is ______ than is transitory income.

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

Examination of data from households shows that households with high current income ______ than do households with low current income.

An increase in income in period one in Irving Fisher's two-period consumption model increases consumption in:

The marginal propensity to consume is the:

Explain the controversial views held by the classical economists and Keynes about the determinant of consumption.

Keynes's conclusion is quite different from that of Fisher's model of consumption. Explain how.

Kuznets' data showed a short-run consumption function with a ______ APC, and a long-run consumption function with a ______ APC.

In the Fisher two-period model, if the consumer is a saver, consumption in periods one and two are normal goods, and the income effect of an increase in interest rate is less than the substitution effect, then saving:

The consumption decisions of individuals are not important for the:

Empirical evidence finds that the average propensity to consume is constant:

According to the permanent-income hypothesis, consumption depends primarily on ______ income.

If the permanent-income hypothesis is correct, and if consumers have rational expectations, then changes in consumption over time should be:

Empirical evidence finds that the average propensity to consume is falling:

The Fisher two-period model shows that current consumption depends on:

Every indifference curve shows combinations of first-period and second-period consumption that:

The Keynesian consumption function exhibits all of the following properties except that:

The success of the "Save More Tomorrow" program is based on the assumption that consumers:

If a consumer cannot borrow, then consumption in period one must be ______ income in period(s) _____.

Permanent and transitory incomes differ in the way that permanent income is ______ than is transitory income.

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

Kuznets' data showed a short-run consumption function with a APC, and a long-run consumption function with a APC.

If a consumer cannot borrow, then consumption in period one must be __ income in period(s) _.