solutions3 - University of California, Riverside Econ 103A...

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1 University of California, Riverside Econ 103A Macroeconomic Theory Winter 2008 Solutions to Quiz # 3 1. When there is an increase in current income, which of the following statements is correct under the consumption-smoothing motive ? Current consumption increases and saving increases. 2. Consider a consumer who originally chooses to consume 500 units of good in the current period. Suppose now her current income increases by 1,000 units. Her marginal propensity to consume is 0.78. What is the new level of current consumption ? 500 + 1,000 x 0.78 3. When there is an increase in real interest rate, which of the following statements about the substitution effect is correct for a borrower ? A borrower should increase his saving. (The substitution effect is the same for both borrower and saver.) 4. Suppose the real interest rate is 3%, the annual depreciation rate of capital good is 6% and the unit price of capital good is 3,600 units of goods. What is the user cost of capital ? 3,600 x ( 3% + 6% )
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This note was uploaded on 04/16/2008 for the course ECON 103a taught by Professor Suen during the Winter '08 term at UC Riverside.

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solutions3 - University of California, Riverside Econ 103A...

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