QUIZ-III-ECO-3203-F2003-sola

Answer b 17 a martingale has the property that a it is

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Unformatted text preview: ral substitution effect. Answer: (b) 17) A martingale has the property that a) it is inherently unpredictable. b) the best prediction of its value tomorrow is its value today. c) 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) 18) A change in the stock market is a good indicator of a change in a) current income. b) future income. c) wealth. d) the future growth rate of real GDP. Answer: (c) 19) An increase in the real interest rate is an example of a a) pure substitution effect. b) substitution effect and a positive income effect. c) asubstitution effect and a negative income effect. d) substitution effect and an income effect whose sign depends on whether the consumer is initially a 4 borrower or a lender. Answer: (d) 20) For a borrower, an increase in the real interest rate a) definitely reduces current consumption and increases future consumption. b) reduces current consumption and has an uncertain effect on future consumption. c) has an uncertain effect on current consumption and increases future consumption. d) has an uncertain effect on both current and future consumption. Answer: (b) 21) The substitution effect of a change in the real interest rate is an example of a) an intratemporal substitution effect. b) an intertemporal substitution effect. c) an atemporal substitution effect. d) a temporary substitution effect. Answer: (b) 22) The marginal propensity to consume is a measure of the responsiveness of current consumption to changes in a) current income. b) future income. c) permanent income. d) wealth. Answer: (a) 23) The Ricardian equivalence theorem implies that a) government debt policy must be handled correctly for the economy to prosper. b) the amounts of government spending are neutral. c) an increase in government spending has no effect on the economy, as long as there is an equal change in taxes. d) the timing of taxes collected by the government is neutral. Answer: (d) 24) If government spending is held constant and Ricardian equivalence holds, a) an increase in the government budget deficit is always matched by a reducti...
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This document was uploaded on 03/03/2014.

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