Exam2_Answer

Exam2_Answer - Name: ID: ECO301 Midterm 2 Spring 2010...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
ECO301 Midterm 2 Spring 2010 Section 3004 Name: ID: Date: Part 1. Multiple Choice Questions (80 Points) 1. If the substitution effect of the real interest rate on saving is smaller than the income effect of the real interest rate on saving, then a rise in the real interest rate leads to a ________ in consumption and a ________ in saving, for someone who's a lender. a) fall; fall b) fall; rise c) rise; fall d) rise; rise Answer: C 2. The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut a) causes inflation. b) doesn't affect consumption. c) raises interest rates. d) causes a current account deficit. Answer: B 3. With no inflation and a nominal interest rate (i) of .05, a person can trade off one unit of future consumption for ________ units of current consumption. a) 1.05 b) 0.95 c) 1.50 d) 0.57 Answer: B 4. The fraction of additional current income that a person consumes in the current period is known as the a) marginal propensity to consume. b) consumption-smoothing motive. c) consumption deficit. d) saving rate. Answer: A 5. When a person receives an increase in wealth, what is likely to happen to consumption and saving? a) Consumption increases and saving increases 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
b) Consumption decreases and saving decreases. c) Consumption decreases and saving increases d) Consumption increases and saving decreases. Answer: D 6. Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent increase in the depreciation rate now has what effect on your desired capital stock? a) Raises it, because the future marginal productivity of capital is higher b) Lowers it, because the user cost of capital is now higher c) Raises it, because the user cost of capital is now lower d) Lowers it, because the future marginal productivity of capital is lower Answer: B 7. At the start of the year, your firm's capital stock equaled $100 million, and at the end of the year it equaled $105 million. The average depreciation rate on your capital stock is 20%. Gross investment during the year equaled
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 6

Exam2_Answer - Name: ID: ECO301 Midterm 2 Spring 2010...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online