Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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1.
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In the U.S., consumption is about
a. | twice as volatile as GDP. | c. | three-quarters as volatile as
GDP. | b. | half as volatile as investment. | d. | as volatile as
GDP. |
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2.
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Let the interest rate be 6% per year. The present value in 1999 of $100 received
in 1999 and $159 received in 2000 is
a. | $250. | c. | $235. | b. | $259. | d. | $268.54. |
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3.
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An increase in the rate of interest will increase household saving
because
a. | it will shift the saving supply curve to the right. | b. | investment demand
will decrease. | c. | the investment demand curve will shift up and hence saving will go up in
equilibrium. | d. | it makes future consumption cheaper relative to present
consumption. |
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4.
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One problem with the Keynesian consumption function
is that it
a. | focuses on the motives for spending and ignores the
motives for saving. | b. | hypothesises that
decisions to save are influenced only by current income. | c. | assumes that the marginal propensity to consume is
constant. | d. | bases consumption decisions only on current
income. |
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5.
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According to the permanent income
hypothesis
a. | a temporary increase in income will mainly be
spent. | b. | a rise in wage rates will lead mainly to an increase in
saving. | c. | a change in disposable income will always lead to a
permanent change in consumption. | d. | a temporary fall
in wages will lead to a less than proportional reduction in
consumption. |
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6.
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The slope of the intertemporal budget constraint
depends on
a. | the rate of interest. | b. | the average two period level of income. | c. | income in period 1 compared with period 2. | d. | expenditure in period 1 compared with period
2. |
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7.
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Figure 2.1 shows two budget constraints for a
consumer. 
A
change in the budget constraint from BC1 to BC2 could have been caused
by
a. | a fall in interest rates for a net
borrower. | b. | a rise in interest rates for a net
borrower. | c. | a fall in interest rates for a net
saver. | d. | a rise in interest rates for a net
saver. |
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8.
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8.
In a two-period model of the intertemporal budget constraint, the
maximum second period consumption is such that
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