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

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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

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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
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This note was uploaded on 05/05/2010 for the course COM 4123 taught by Professor Ted during the Spring '10 term at SUNY Albany.

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

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