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Macroeconomics, 3e (Williamson) : Question Status
Macroeconomics, 3e (Williamson) : Question Status
Chapter 8
the tendency of all consumers to choose the same amount of current consumption.
B)
the tendency of consumers to seek a consumption path over time that is smoother than income.
C)
the tendency of consumers to seek an income path over time that is smoother than consumption.
D)
B
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2)
C
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3)
one-period model.
B)
two-period model.
C)
model that includes only the number of years of a typical consumer's lifetime.
D)
B
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4)
B
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5)
We limit ourselves to two periods in the intertemporal model of the business cycle because
A)
we can assume that people can live two periods of, say, 30 years.
C)
C
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6)
A
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7)
durable consumption.
B)
non-durable consumption.
C)
postponed consumption.
D)
money.
Answer:
C
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8)
1
units of goods in the second period.
(1 + r )
B)
C
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9)
the present value of lifetime consumption must be equal to the present value of lifetime gross income.
B)
the present value of lifetime consumption must be equal to the present value of lifetime disposable
income.
C)
the present value of lifetime consumption plus the present value of lifetime taxes to be paid must be equal
to the present value of lifetime income.
D)
the present value of lifetime taxes to be paid by the consumer must be equal to the present value of
government spending.
Answer:
B
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10)
D
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11)
no savings occur.
D)
New
12)
c = c'.
B)
c = y - t.
C)
y - t = y' - t'.
D)
y = y'.
Answer:
B
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13)
If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the
vertical (future consumption) intercept of the consumer's budget line is equal to
A)
we.
B)
(1 + r)we.
C)
we
.
(1 + r )
D)
(1 + r )
.
we
Answer:
B
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14)
If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the
horizontal (current consumption) intercept of the consumer's budget line is equal to
A)
we.
B)
(1 + r)we.
C)
we
.
(1 + r )
D)
(1 + r )
.
we
Answer:
A
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15)
If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the slope
of the consumer's budget line is equal to
A)
r we.
B)
1
- .
(1 + r )
C)
r
- .
(1 + we)
D)
- (1 + r).
Answer:
D
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16)
increases.
B)
stays constant.
C)
decreases.
D)
C
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17)
To assure a well-defined solution to the consumers' intertemporal choice problems, we must assume that
consumers' preferences exhibit the properties that
A)
consumers are all identical and that more is always preferred to less.
B)
more is sometimes preferred to less and that first-period consumption and second-period consumption
are both normal goods.
Answer:
B
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18)
We assume that the representative consumer's preferences exhibit the properties that
A)
more is always preferred to less and that each consumer has one strictly favorite period of time for
consumption.
C)
each consumer has one strictly favorite period of time for consumption and that current and future
consumption are both normal goods.
D)
current and future consumption are both normal goods and that the consumer likes diversity in his or her
consumption bundle.
Answer:
D
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19)
The property of diminishing marginal rate of substitution follows from the property that the indifference
curves are
A)
downward sloping.
B)
upward sloping.
C)
C
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20)
1
MRSc,c' =
(1 + r )
B)
MRSc,c' = (1 + r)
C)
1
MRTc,c' =
(1 + r )
D)
MRTc,c' = (1 + r)
Answer:
B
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21)
A consumer is a borrower if
A)
B
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22)
A consumer is a lender if
A)
A
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23)
B
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24)
A
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25)
D
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26)
A
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27)
A
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28)
A
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29)
B
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30)
We do not know.
Answer:
C
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31)
aggregate consumption.
B)
D
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32)
real GDP
B)
consumption of durables
C)
consumption of nondurables
D)
consumption of services
Answer:
B
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33)
In the absence of a financial system, the two-period model without taxes predicts that
A)
We do not know.
Answer:
B
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34)
The two primary explanations for the excess volatility of consumption are
A)
B
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35)
D
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36)
The idea that a permanent increase in income causes a larger increase in consumption than a temporary
change in income is called the
A)
Friedman-Lucas theory.
B)
B
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37)
Permanent income is
A)
New
38)
D
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39)
New
40)
it is inherently unpredictable.
B)
the best prediction of its future growth rate is its current growth rate.
D)
the best prediction of its value tomorrow can be computed by looking at its past behavior.
Answer:
B
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41)
current income.
B)
future income.
C)
wealth.
D)
C
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42)
substitution effect and an income effect whose sign depends on whether the consumer is initially a
borrower or a lender.
Answer:
D
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43)
increases savings for borrowers, but has an uncertain effect on the savings of lenders.
C)
increases savings for lenders, but has an uncertain effect on the savings of borrowers.
D)
B
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44)
C
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45)
B
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46)
B
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47)
taxes only.
Answer:
B
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48)
the present value of government spending must be equal to the present value of consumers' disposable
incomes.
C)
the present value of government spending must be equal to the present value of taxes.
D)
the government may run deficits each and every year, as long as the deficits are sufficiently small.
Answer:
C
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49)
For a competitive equilibrium in a two-period model, all of the following must be true except
A)
each consumer picks first- and second-period consumption given the real interest rate.
B)
B
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50)
government debt policy must be handled correctly for the economy to prosper.
B)
an increase in government spending has no effect on the economy, as long as there is an equal change in
taxes.
D)
D
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51)
an increase in the government budget deficit is always matched by a reduction in private savings.
B)
an increase in government savings is always matched by an increase in the government budget deficit.
C)
D
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52)
B
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53)
B
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54)
D
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55)
government debt incurred today may not be paid off until after some current consumers are deceased.
C)
B
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56)
B
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57)
B
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58)
When different consumers pay different amounts of taxes, Ricardian equivalence may fail because
A)
alternative ways of collecting the same tax revenue can affect the distribution of income.
B)
A
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59)
they confuse consumers about the need for government to repay its debt.
B)
alternative ways of collecting the same tax revenue produce different amounts of lost welfare.
C)
B
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60)
The phenomenon that some consumers pay a higher interest rate when they borrow than the interest rate
they receive when they lend is best described as an example of
A)
irrational behavior.
B)
B
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61)
When there are credit-market imperfections, an increase in government debt may be advantageous
because it
A)
B
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62)
Consumer choice theory predicts that, with identical consumers, fully-funded social security
A)
makes some generations better off, and cannot make any generation worse off.
C)
may make some generations worse off and cannot make any generation better off.
D)
C
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63)
the young are forced to save for the retirement of the old.
Answer:
B
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64)
With sufficiently high population growth, many young contribute to the benefits of the old.
Answer:
D
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65)
Consumer choice theory predicts that, with identical consumers, pay-as-you-go social security
A)
makes some generations better off, and cannot make any generation worse off.
C)
may make some generations worse off and cannot make any generation better off.
D)
D
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66)
A
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