Question 1

The theory of intertemporal choice was presented by ________.

Accepted Answer

A)  Adam Smith in 1776
B)  Alfred Marshall in 1871
C)  Irving Fisher in 1930
D)  John Maynard Keynes in 1936E) None of the above
F) B) and C)

Question 2

Suppose consumers anticipate that their wealth will grow over time,because of interest earnings and capital gains.According to the life-cycle hypothesis,such optimism should cause current consumption to be ________.

Accepted Answer

A)  relatively low
B)  relatively insensitive to changes in income
C)  rising as individuals near retirement age
D)  relatively highE) B) and C)
F) None of the above

Question 3

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

Accepted Answer

A)  the substitution effects outweigh the income effects
B)  the income effect outweighs the substitution effect
C)  the income and substitution effects cancel out with one another
D)  the income effect increases the severity of the substitution effectE) All of the above
F) None of the above

Question 4

In the Keynesian consumption function,if current income is equal to zero,consumption spending is equal to ________.

Accepted Answer

A)  the marginal propensity to consume
B)  the average propensity to save
C)  autonomous consumption
D)  exogenous consumptionE) All of the above
F) A) and B)

Question 5

A rightward shift in the intertemporal budget line would be caused by ________.

Accepted Answer

A)  an increase in future income and wealth
B)  an increase in future income and a decrease in wealth
C)  a decrease in future income and an increase in wealth
D)  a decrease in future income and wealthE) B) and C)
F) B) and D)

Question 6

Consumers who do not consistently discount the future over time are likely to ________.

Accepted Answer

A)  under-report their taxable income
B)  be unprepared financially for retirement
C)  opt in to employer-sponsored savings plans
D)  make excessive sacrifices on behalf of their childrenE) None of the above
F) C) and D)

Question 7

The Keynesian consumption function does not display consumption smoothing,because ________.

Accepted Answer

A)  the average propensity to consume rises with income
B)  the marginal propensity to consume is constant
C)  consumption is not affected by the real interest rate
D)  consumption is not affected by future incomeE) B) and C)
F) A) and B)

Question 8

If an indifference curve intersects the budget constraint at two points,then ________.

Accepted Answer

A)  the consumer would be equally happy at either of those two points
B)  optimal consumption is found by moving to a lower indifference curve
C)  optimal consumption is found by moving to a lower budget constraint
D)  the consumer will choose the point that minimizes consumption expenditureE) A) and B)
F) A) and C)

Question 9

The theory of intertemporal choice,and the life-cycle and permanent income hypotheses have in common the assumption that ________.

Accepted Answer

A)  consumption decisions are affected by current expectations about lifetime resources
B)  consumption decisions are based on all available information
C)  current income,rather than expected income,has the greater influence on consumption decisions
D)  decisions to borrow and save are influenced much more by immediate circumstances than by long-term consequencesE) B) and C)
F) A) and C)

Question 10

An intertemporal budget constraint ________.

Accepted Answer

A)  describes how much time an individual consumer has to spend their disposable net national product
B)  is independent of the real interest rate and wealth of the household
C)  divides consumption spending into three categories: spending on durables,non-durables and services
D)  describes how much a person can consume today versus tomorrowE) B) and D)
F) A) and D)

Question 11

The permanent income hypothesis highlights the phenomenon of ________.

Accepted Answer

A)  the intertemporal budget constraint
B)  a binding borrowing constraint
C)  autonomous consumption
D)  consumption smoothingE) A) and B)
F) A) and C)

Question 12

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.

Accepted Answer

An increase in the real interest rate af...

Question 13

Which of the following is not true of all indifference curves?

Accepted Answer

A)  they slope downward
B)  the point at which one indifference curve intersects another represents an optimal consumption basket
C)  they are bowed toward the origin
D)  they can intersect with a budget constraint one or more timesE) B) and C)
F) A) and D)

Question 14

________ will increase current consumption,saving,and future consumption.

Accepted Answer

A)  an increase in future income
B)  an increase in initial wealth
C)  an increase in current income
D)  a decrease in the real interest rateE) C) and D)
F) None of the above

Question 15

Consumption smoothing refers to ________.

Accepted Answer

A)  the impact of future income on current consumption and of current income on future consumption
B)  the constancy of consumption over time
C)  the impact of current consumption on future income and of future consumption on current income
D)  the tendency of consumers to adopt similar spending habitsE) A) and B)
F) B) and C)

Question 16

A theory of saving is necessarily a theory of consumption,because ________.

Accepted Answer

A)  by definition,any unit of disposable income that is not a consumption expenditure is a unit of saving
B)  consumption decisions are made after saving has occurred
C)  private saving is equal to private investment
D)  the goal of consumption choices is to achieve the desired level of savingsE) A) and D)
F) A) and C)

Question 17

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

Accepted Answer

A)  current and future income
B)  future and transitory income
C)  transitory and permanent income
D)  permanent and current incomeE) A) and D)
F) B) and C)

Question 18

According to the life-cycle hypothesis,as people grow older ________.

Accepted Answer

A)  their wealth grows before and after retirement
B)  their wealth declines before and after retirement
C)  their wealth grows before retirement,then declines after retirement
D)  their wealth falls before retirement,then rises after retirementE) None of the above
F) A) and B)

Question 19

The marginal propensity to consume describes ________.

Accepted Answer

A)  the tendency to consume fringe,or unusual items
B)  the impact of a change in spending on income
C)  the impact on consumption resulting from a change in income
D)  lifetime consumption resourcesE) All of the above
F) A) and B)

Question 20

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

Accepted Answer

A)  wealth changes
B)  current income changes
C)  permanent income changes
D)  unanticipated new information arisesE) A) and B)
F) A) and C)

Exam 18: Consumption and Saving

The permanent income hypothesis highlights the phenomenon of ________.

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According to the life-cycle hypothesis,as people grow older ________.

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Consumption smoothing refers to ________.

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

Correct AnswerverifiedShow Answer

________ will increase current consumption,saving,and future consumption.

Correct AnswerverifiedShow Answer

An intertemporal budget constraint ________.

Correct AnswerverifiedShow Answer

In the Keynesian consumption function,if current income is equal to zero,consumption spending is equal to ________.

Correct AnswerverifiedShow Answer

The theory of intertemporal choice,and the life-cycle and permanent income hypotheses have in common the assumption that ________.

Correct AnswerverifiedShow Answer

The Keynesian consumption function does not display consumption smoothing,because ________.

Correct AnswerverifiedShow Answer

Suppose consumers anticipate that their wealth will grow over time,because of interest earnings and capital gains.According to the life-cycle hypothesis,such optimism should cause current consumption to be ________.

Correct AnswerverifiedShow Answer

The marginal propensity to consume describes ________.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedAn increase in the real interest rate af...View AnswerShow Answer

Which of the following is not true of all indifference curves?

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If an indifference curve intersects the budget constraint at two points,then ________.

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A rightward shift in the intertemporal budget line would be caused by ________.

Correct AnswerverifiedShow Answer

A theory of saving is necessarily a theory of consumption,because ________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Consumers who do not consistently discount the future over time are likely to ________.

Correct AnswerverifiedShow Answer

The theory of intertemporal choice was presented by ________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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An increase in the real interest rate af...
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