macro95ex4 - Chapter 4 Consumption, Saving, and Investment...

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Chapter 4 Consumption, Saving, and Investment T Multiple Choice Questions 1. Desired national saving equals (a) Y C d G . (b) C d + I d + G . (c) I d + G . (d) Y – I d G. Answer: A Level of difficulty: 1 Section: 4.1 2. With no inflation and a nominal interest rate ( i ) of .03, a person can trade off one unit of current consumption for _____ units of future consumption. (a) 0.97 (b) 1.03 (c) .03 (d) –.03 Answer: B Level of difficulty: 1 Section: 4.1 3. The desire to have a relatively even pattern of consumption over time is known as (a) excess sensitivity. (b) the substitution effect. (c) the consumption-smoothing motive. (d) forced saving. Answer: C Level of difficulty: 1 Section: 4.1 4. When a person gets an increase in current income, what is likely to happen to consumption and saving? (a) Consumption increases and saving increases. (b) Consumption increases and saving decreases. (c) Consumption decreases and saving increases. (d) Consumption decreases and saving decreases. Answer: A Level of difficulty: 1 Section: 4.1
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Chapter 4 Consumption, Saving, and Investment 51 5. Last year, Linus earned a salary of $25,000 and he spent $24,000, thus saving $1000. At the end of the year, he received a bonus of $1000 and he spent $500 of it, saving the other $500. What was his marginal propensity to consume? (a) 0.96 (b) 0.50 (c) 0.04 (d) 0.02 Answer: B Level of difficulty: 2 Section: 4.1 6. The fraction of additional current income that a person consumes in the current period is known as the (a) consumption-smoothing motive. (b) consumption deficit. (c) saving rate. (d) marginal propensity to consume. Answer: D Level of difficulty: 1 Section: 4.1 7. An increase in expected future output while holding today’s output constant would (a) increase today’s desired consumption and increase desired national saving. (b) increase today’s desired consumption and decrease desired national saving. (c) decrease today’s desired consumption and increase desired national saving. (d) decrease today’s desired consumption and decrease desired national saving. Answer: B Level of difficulty: 2 Section: 4.1 8. When a person receives an increase in wealth, what is likely to happen to consumption and saving? (a) Consumption increases and saving increases. (b) Consumption increases and saving decreases. (c) Consumption decreases and saving increases. (d) Consumption decreases and saving decreases. Answer: B Level of difficulty: 1 Section: 4.1 9. Aunt Agatha has just left her nephew $5000. The most likely response is for her nephew to (a) increase current consumption, but not future consumption. (b) decrease current consumption, but increase future consumption. (c) increase future consumption, but not current consumption.
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This note was uploaded on 03/15/2012 for the course ECON 101 taught by Professor Carlitos during the Spring '11 term at Alaska Bible.

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macro95ex4 - Chapter 4 Consumption, Saving, and Investment...

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