Deck 11: A Real Intertemporal Model with Investment

Question 1

When drawn against the current real wage,the labor demand curve shift to the right if

A) the interest rate increases.
B) current taxes increase.
C) total factor productivity increases.
D) future capital increases.

Answer 1

total factor productivity increases.

Question 2

An increase in lifetime wealth

A) increase current labor supply and increase current consumption demand.
B) increase current labor supply and decrease current consumption demand.
C) decrease current labor supply and increase current consumption demand.
D) decrease current labor supply and decrease current consumption demand.

Answer 2

decrease current labor supply and increase current consumption demand.

Question 3

At the end of the future period,in the real intertemporal model with investment

A) the firm's capital becomes useless and is thrown away.
B) the firm's capital is used to produce more capital for the distant future.
C) the firm can convert capital one-for-one into consumption goods.
D) the firm's capital is converted into labor.

Answer 3

the firm can convert capital one-for-one into consumption goods.

Question 4

The marginal propensity to consume out of income

A) is larger than one.
B) is equal to one.
C) is smaller than one.
D) varies around one.

Question 5

The demand for current consumption,as plotted against current income,shifts to the right due to all of the following except

A) a decrease in current taxes.
B) a decrease in future taxes.
C) an increase in current income.
D) an increase in future income.

Question 6

The condition,MRS?,C = w,describes the representative consumer's

A) investment decision.
B) consumption - savings decision.
C) current period work - leisure decision.
D) future period work - leisure decision.

Question 7

Next period's capital is equal to current-period investment

A) plus the amount of current capital left over after depreciation.
B) minus the amount of current capital left over after depreciation.
C) plus the amount of current period depreciation.
D) minus the amount of current period depreciation.

Question 8

The intertemporal substitution of leisure effect is used to justify the assumption that current labor supply increases when the

A) current real wage increases.
B) current real wage decreases.
C) real interest rate increases.
D) real interest rate decreases.

Question 9

For the firm in the real intertemporal model with investment

A) depreciation occurs more quickly if the firm produces more output.
B) depreciation takes place at a constant rate.
C) depreciation can be slowed with more maintenance.
D) depreciation is always 100%.

Question 10

A consumer may increase her saving by

A) working more hours and consuming more goods in the present period.
B) working more hours and consuming fewer goods in the present period.
C) working fewer hours and consuming more goods in the present period.
D) working fewer hours and consuming fewer goods in the present period.

Question 11

The condition,MRSC,C' = 1 + r,describes the representative consumer's

A) investment decision.
B) consumption - savings decision.
C) current period work - leisure decision.
D) future period work - leisure decision.

Question 12

The assumption that current-period labor supply is positively related to the current-period real wage is justified as long as the

A) income effect dominates the substitution effect in the short run.
B) income effect dominates the substitution effect in the long run.
C) substitution effect dominates the income effect in the short run.
D) substitution effect dominates the income effect in the long run.

Question 13

The condition,MRS?,'C' = w ',describes the representative consumer's

A) investment decision.
B) consumption - savings decision.
C) current period work - leisure decision.
D) future period work - leisure decision.

Question 14

In the real intertemporal model with investment

A) the firm maximizes the present value of profits.
B) the firm maximizes current profits.
C) the firm maximizes the present value of revenues.
D) the firm maximizes current profits plus future profits.

Question 15

Any increase in the present value of taxes for the consumer implies

A) an increase in lifetime wealth and an increase in current labor supply.
B) an increase in lifetime wealth and a decrease in current labor supply.
C) a decrease in lifetime wealth and an increase in current labor supply.
D) a decrease in lifetime wealth and a decrease in current labor supply.

Question 16

When drawn against the current real wage,the labor demand curve is

A) upward sloping because the marginal product of labor rises with the quantity of labor employed.
B) upward sloping because the marginal product of labor declines with the quantity of labor employed.
C) downward sloping because the marginal product of labor rises with the quantity of labor employed.
D) downward sloping because the marginal product of labor declines with the quantity of labor employed.

Question 17

In the real intertemporal model with investment,there is intertemporal substitution with respect to

A) consumption and leisure.
B) government spending.
C) capital.
D) current consumption.

Question 18

In the real intertemporal model with investment

A) we abstract from labor/leisure choice.
B) consumers always save a constant fraction of their income.
C) there are many different consumers.
D) consumers make choices over current consumption and leisure, and future consumption and leisure.

Question 19

The demand for current consumption,as plotted against the interest rate,shifts to the right due to all of the following except

A) a decrease in current taxes.
B) a increase in future taxes.
C) an increase in current income.
D) an increase in future income.

Question 20

When drawn against the current wage,the current labor supply shifts to the right if

A) current taxes increase.
B) future taxes decrease.
C) firms make more profits.
D) total factor productivity increases.

Question 21

When drawn against the real interest rate,output supply increases if

A) current government expenses increase.
B) future government expenses increase.
C) current total factor productivity increases.
D) the money supply increases.

Question 22

The marginal benefit from investment for a firm is equal to

A)
B)
C)
D)

Question 23

When drawn against the real interest rate,output supply increases if

A) the present value of taxes decreases.
B) current capital increases.
C) the interest rate decreases.
D) future total productivity increases.

Question 24

Labor demand depends on the interest rate because

A) household savings depend on the interest rate.
B) firms discount future profits.
C) of Ricardian equivalence.
D) Labor demand actually does not depend on the interest rate.

Question 25

When drawn against the real interest rate,the optimal investment schedule shifts to the right if the

A) current capital stock K increases.
B) current capital stock K decreases.
C) future capital stock K' increases.

Question 26

If firm-level asymmetric information becomes more severe,then

A) investment demand increases.
B) investment demand decreases.
C) investment demand does not change.
D) it is impossible to tell.

Question 27

When drawn against the real interest rate,the optimal investment schedule shifts to the right if

A) current total factor productivity z increases.
B) current total factor productivity z decreases.
C) future total factor productivity z' increases.
D) future total factor productivity z' decreases.

Question 28

When drawn against the real interest rate,the output demand curve shifts to the right when

A) current total factor productivity z increases.
B) current total factor productivity z decreases.
C) future total factor productivity z' increases.
D) future total factor productivity z' decreases.

Question 29

The marginal cost of investment for the firm is equal to

A) 1.
B) 0.
C) the depreciation rate.
D) the depreciation rate plus the interest rate.

Question 30

In determining the benefit of additional investment to the representative firm,we consider the marginal product of

A) current capital.
B) future capital
C) current labor.
D) future labor.

Question 31

If the interest rate goes up,what happens to the investment demand curve?

A) It shifts to the right.
B) It shift to the left.
C) It stays put.
D) We cannot tell.

Question 32

When drawn against the real interest rate,the output supply curve unambiguously shifts to the right if

A) current capital decreases.
B) current total factor productivity decreases.
C) future total factor productivity decreases.
D) current or future taxes increase.

Question 33

When drawn against the real interest rate,the output demand curve unambiguously shifts to the right if either or both of the following occur.

A) an increase in current taxes and an increase in future taxes
B) an increase in current taxes and a decrease in future taxes
C) a decrease in current taxes and an increase in future taxes
D) a decrease in current taxes and a decrease in future taxes

Question 34

When drawn against the real interest rate,output demand increases if

A) current government expenses increase.
B) future government expenses increase.
C) current taxes increase.
D) future taxes increase.

Question 35

Firms discount future profits at the interest rate r because

A) it is the interest rate on their debt.
B) it is the same rate as for households.
C) Ricardian equivalence holds.
D) it has to equal the marginal productivity of capital in equilibrium.

Question 36

When drawn against current income,the slope of the C? ??? ? ?? ??? ? ? curve is equal to the marginal

A) product of capital.
B) product of labor.
C) propensity to consume.
D) propensity to save.

Question 37

The marginal cost of investment for the firm is equal to

A) 1.
B) -1.
C) MP'K.
D) -MP'K.

Question 38

When drawn against the real interest rate,the output supply curve is upward sloping because labor supply is

A) increasing in the real interest rate and labor demand is independent of the real interest rate.
B) decreasing in the real interest rate and labor demand is independent of the real interest rate.
C) independent of the real interest rate and labor demand is increasing in the real interest rate.
D) independent of the real interest rate and labor demand is decreasing in the real interest rate.

Question 39

When drawn against the real interest rate,the output demand curve unambiguously shifts to the right if

A) current capital decreases.
B) current total factor productivity decreases.
C) future total factor productivity decreases.
D) current or future taxes increase.

Question 40

Output supply is increasing in the interest rate because

A) labor demand is increasing in the interest rate.
B) labor demand is decreasing in the interest rate.
C) labor supply is increasing in the interest rate.
D) labor supply is decreasing in the interest rate.

Question 41

In the real intertemporal model,if future total factor productivity increases,this captures the effects of

A) intemporal substitution.
B) Ricardian equivalence.
C) the government expenditure multiplier.
D) news shocks.

Question 42

Any increase in the present value of taxes implies

A) an increase in lifetime wealth and an increase in the current labor supply.
B) an increase in lifetime wealth and a decrease in the current labor supply.
C) a decrease in lifetime wealth and an increase in the current labor supply.
D) a decrease in lifetime wealth and a decrease in the current labor supply.

Question 43

In response to a temporary increase in government spending,the representative consumer consumes

A) more and takes more leisure.
B) more and takes less leisure.
C) less and takes more leisure.
D) less and takes less leisure.

Question 44

In the real intertemporal model,an adverse sectoral shock acts to

A) reduce real output and reduce the real interest rate.
B) increase real output and increase the real interest rate.
C) increase real output and reduce the real interest rate.
D) reduce real output and increase the real interest rate.

Question 45

In the real intertemporal model,an adverse sectoral shock acts to

A) shift the output demand curve to the left, and the labor supply curve to the left.
B) shift the labor demand and labor supply curves to the left.
C) shift the labor demand curve to the right, and the labor demand curve to the left.
D) shift the output supply curve to the right.

Question 46

A temporary increase in government spending that leads to only a small decline in lifetime wealth likely shifts the output demand curve to the

A) right by more than the rightward shift in output supply.
B) right by less than the rightward shift in output supply.
C) left by more than the leftward shift in output supply.
D) left by less than the leftward shift in output supply.

Question 47

The total government expenditure multiplier is less than one because

A) government expenses affect labor demand.
B) labor supply reacts to interest rate changes and consumption demand is affected by taxes.
C) investment demand falls dramatically when the government goes into debt.
D) the marginal propensity to consume is less than one.

Question 48

The equilibrium effects of a prospective future increase in total factor productivity include

A) an increase in the real wage and an increase in the real interest rate.
B) an increase in the real wage and a decrease in the real interest rate.
C) a decrease in the real wage and an increase in the real interest rate.
D) a decrease in the real wage and a decrease in the real interest rate.

Question 49

The equilibrium effects of a temporary increase in total factor productivity include

A) an increase in the real wage and an increase in the real interest rate.
B) an increase in the real wage and a decrease in the real interest rate.
C) a decrease in the real wage and an increase in the real interest rate.
D) a decrease in the real wage and a decrease in the real interest rate.

Question 50

The response of output following a natural disaster includes

A) an increase in output demand and an increase in output supply.
B) an increase in output demand and a decrease in output supply.
C) a decrease in output demand and an increase in output supply.
D) a decrease in output demand and a decrease in output supply.

Question 51

If future total factor productivity increases

A) labor demand increases.
B) government expenses increase.
C) consumption demand decreases.
D) investment demand increases.

Question 52

How many of the following business cycle facts can be explained if the primary cause of business cycles is temporary changes in total factor productivity: procyclical consumption,procyclical investment,procyclical employment,and procyclical real wages?

A) one
B) two
C) three
D) four

Question 53

An increase in credit market frictions

A) decreases labor supply.
B) decreases labor demand.
C) decreases consumption demand.
D) decreases investment demand.

Question 54

In general equilibrium

A) supply equals demand for all goods in all periods.
B) supply equals demand for most goods in all periods.
C) supply equals demand in present value, but not in all periods.
D) prices are exogenous.

Question 55

The equilibrium effects of a temporary increase in government spending include

A) an increase in the real wage and an increase in the real interest rate.
B) an increase in the real wage and a decrease in the real interest rate.
C) a decrease in the real wage and an increase in the real interest rate.
D) a decrease in the real wage and a decrease in the real interest rate.

Question 56

What could result in an increase of consumption demand and a decrease in labor supply?

A) a drop in current taxes
B) an increase in future taxes
C) a decrease in total factor productivity
D) an increase in government expenses

Question 57

The total multiplier of government expenditure is

A) zero.
B) between zero and one.
C) one.
D) larger than one.