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A) The long-run mpc is lower than the short-run mpc B) The life-cycle hypothesis and permanent income hypothesis make strikingly different claims about forward-looking consumption function C) Consumption appears to change to change too much in response to unpredictable changes in income D) People save more than the permanent income theory suggests because they wish to leave inheritances for their children 2
A) mpc out of transitory income is fairly large B) mpc out of transitory income is fairly small C) level of consumption sharply decreases after retirement D) level of consumption is not affected by changes in wealth 3
A) liquidity constraint B) budget constraint C) bequests D) price constraint 4
A) no change in current consumption since financial investors lost only what they previously gained B) an increase in consumption since people sold their stocks C) a decrease in current consumption of almost $500 billion D) only a fairly small drop in current consumption due to the wealth effect 5
A) $45,000 B) $40,000 C) $35,000 D) $30,000 6
A) consumers will increase their savings by almost the full amount of the tax-cut B) consumers will increase their borrowings C) consumers will increase their consumption by the same amount of the tax-cut D) the tax-cut will have a large effect on aggregate demand 7
A) the short-run multiplier is identical to the long-run multiplier B) the short-run multiplier is larger than the long-run multiplier C) the short-run mpc is larger than the long-run mpc D) the short-run mpc is smaller than the long-run mpc 8
A) increases in current income lead to large increases in consumption B) increases in the interest rate will affect consumption negatively C) the mpc out of transitory income is greater than the mpc out of permanent income D) current consumption is not significantly affected by a temporary increase income 9
A) amount of wealth B) government budget deficit C) number of working years D) number of years of retirement 10
A) why consumers spend less than the permanent income theory predicts as their current income falls B) why consumption might increase more than the permanent income theory predicts when income rises again after recession C) why consumers may behave in a manner predicted by the simple Keynesian consumption function D) all of the above 11
A) take a trip around the world B) deposit $5,000 in a savings account and invest $5,000 in mutual funds C) use it for a down-payment on a house D) buy some Microsoft stocks 12
A) clearly contradicts the permanent income theory B) predicts that current consumption is most strongly affected by current income C) predicts that this year's consumption is most strongly affected by last year's consumption D) does not support the notion that people have rational expectations 13
A) consumption responds too strongly to surprise changes in income B) current consumption is always completely predictable from changes in current income C) changes in transitory income have no effect on current consumption or saving D) none of the above 14
A) people's inability to borrow when their current income decreases B) the fact that people may not believe an announcement by the government to lower taxes C) the fact that people are not as forward looking as the permanent income theory suggests D) all of the above 15
A) the existence of liquidity trap B) the absence of myopia C) the fact that consumers have the opportunity to borrow or save D) none of the above 16
A) people believe that debt financing now merely post-pones taxation B) since many people always can borrow, they always consume according to their permanent income C) a tax cut may ease people's liquidity constraints, inducing them to consume more D) none of the above
2002 McGraw-Hill Higher Education