Exam 18: Consumption and Saving

Consumers who do not consistently discount the future over time behave in a fashion that is most consistent with ________.

The life-cycle hypothesis applies the concept of ________ to retirement.

The recession of 2008-2009 demonstrated that ________.

If high incomes inspire more saving than low incomes ________.

In 2008, the wealth of U.S. households fell by ________.

Intertemporal Budget Constraint -Using the table above, and assuming no bequest, what amount of consumption is chosen in period 1, if the consumer wants consumption in the two periods to be equal? If initial wealth is $40,000, what amount of consumption is equal over the two periods?

How might consumers for whom the borrowing constraint is binding benefit from access to relatively expensive forms of credit (e.g., pawn shops and "payday" loans)?

Use the intertemporal budget constraint -- equation (2) -- to explain how an increase in the real interest rate causes two distinct effects, an income effect and a substitution effect, and how those effects differ depending on whether the consumer is a saver or a borrower.

________ might cause the borrowing constraint to become non-binding, even though the consumer still cannot borrow.

Intertemporal Budget Constraint -Given the table above, suppose consumption in period two is $35,000. Then, the interest rate rises to five percent, and period-two consumption falls to $34,900. We may infer that ________.

According to rational expectations, expectations will only change in the event that ________.

In practice, it is usual to assume that, in explaining the impact of a change in interest rates ________.

Indifference curves describe ________.

In the permanent income hypothesis, income is divided into ________.

According to the permanent income hypothesis, the impact of ________.

Discounting involves dividing next-period income by________.

Advances in medical practice have increased both expected lifespans and medical expenditures. What does the life-cycle hypothesis predict as the macroeconomic consequences?

When the borrowing constraint is binding, ________.

Indifference curves tend to be convex because ________.

The rate at which a consumer is willing to give up consumption in one period for additional consumption in another is known as ________.