In the two-period model, suppose that current consumption is a normal good. If the interest rate increases, then the individual saving supply O A. depends on whether the individual is initially saving or borrowing O B. always increases if the individual is saving before the change in the interest rate •O C. decreases if in absolute value the substitution effect over current consumption is greater than the income effect. O D. increases if and only if in absolute value the income effect over current consumption is greater than the substitution effect
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- Explain how does adecrease in the current income y affect the consumer’s consumption-saving decision. In particular,explain: 1) How will current consumption c, future consumption c′, and savings s change; 2) Arethere any substitution effect or income effect. Make sure you draw two figures, one for the borrowersand one for the lendersConsider the household model that you have seen in class but now assume that the household lives for 3 periods. She earns $100 in the first period, $110 in the second period, and $120 in the third period. Her goal is to consume equal amounts in all periods. The interest rate is the same in all periods. Which of the following statements are true? O a. In the first period she will save O b. In the first period she will borrow O c. In the third period she will save O d. In the second period her consumption is $100Let us represent consumption in the next period on the vertical axis and consumption this period on the horizontal axis. For an impatient consumer making her decision to consume over two periods - now and the future - the slope of her indifference curve is going to be Select one: O a. unaffected by her impatience. O b. relatively steep. O c. relatively flat. o d. similar to a lender's indifference curve slope.
- O Saving Propensity to Save Curve Dis-saving { Saving O a. Is negative. O b. Is zero. O c. None of the answers is correct. O d. Is positive. 4 Income According to the above diagram: when consumption is a positive amount, saving S1f the Consumption funchon, espressedas C=30+0,7Yd, chayes to C=20+028Yd. which of the fellowing will accaur? OThe Cansumption function Shifts.doon in. Parallel. 6 its slope Anckeases as the Consumpion functionmaes up O Hs Slape ockeases as the Sausing function. slides up its Slope 1wereases as the Consumption function. slides dacana O it sope deExeAses as the Saurisq function. sltdes down. the SautingWhen the consumption function lies above the 45-degree line, households * O Spend on consumption an increasing percentage of any increase in income O Spend on consumption a decreasing percentage of any increase in income O Are dissaving O Save all of any increase in income
- Question: How can there be "Autonomous Spending" even when a person has zero income? O a) All of the above are correct. b) People need to consume at least a minimum to stay alive. UO People need a certain level of consumption even if they do not have income. O d) People spend money from their savings, borrowing or from unemployment or pension pay.If consumption is 10 and 15 and investment is 5 and 20, then the curves of both variables will be O a. Upward sloping O b. Same slope O c. Downward sloping O d. Horizontal sloping8. The individual's budget line (in the neo-classical consumption - leisure choice model) switches from BL₁ to BL2. What change(s) could have caused this? C BL₁ BL 2 a decrease in the wage only. T l O an increase in the wage only. O an increase in non-labor income only. O an increase in both the wage and non-labor income. O a decrease in the wage, but an increase in non-labor income.
- The graph of the consumption function has consumption expenditure on the vertical axis and Select one: O a. time on the horizontal axis. O b. disposable income on the horizontal axis. O c. the Consumer Price Index on the horizontal axis. O d. the interest rate on the horizontal axis.If the interest rate increases, which of the following will occur? 10- O A. The quantity of planned investment will increase. B. The quantity of planned investment will decrease. O C. The investment function will shift rightward. D. The investment function will shift leftward. Suppose that higher taxes are placed on businesses. Using the line drawing tool, show the effect on the investment function. Properly label your new curve. Carefully follow the instructions above, and only draw the required objects. To Planned Real Investment per Year (S trillions) Annual Rate of Interest (%)You are in charge of forecasting revenue for the government. Assume the government is going to increase the tax rate. What type of taxpayer is likely to respond to this tax rate increase by working more? If applicable, what is the name of this effect? O A taxpayer with less disposable income; Substitution Effect O A taxpayer with less disposable income; Substitution Effect A taxpayer with more disposable income; Substitution Effect O A taxpayer with more disposable income; Income Effect O A taxpayer with less disposable income; Income Effect