Deck 9: A: Intertemporal Choice

Question 1

Suppose that Molly from Problem 2 had an income of $500 in period 1 and an income of $250 in period 2. Suppose that her utility function were c^a₁c^1-a₂, where a = 0.60 and the interest rate were 25%. If her income in period 1 doubled and her income in period 2 stayed the same, her consumption in period 1 would

A) double.
B) increase by $300.
C) increase by $150.
D) stay constant.
E) increase by $500.

Answer 1

B

Question 2

Mr. O. B. Kandle, of Problem 8, has a utility function c₁c₂, where c₁ is his consumption in period 1 and c₂ is his consumption in period 2. He has no income in period 2. If he had an income of $70,000 in period 1 and the interest rate increased from 10 to 16%,

A) his savings would increase by 6% and his consumption in period 2 would also increase.
B) his consumption in both periods would decrease.
C) his savings would not change but his consumption in period 2 would increase by 2,100.
D) his consumption in both periods would increase.
E) his consumption in period 1 would decrease by 16% and his consumption in period 2 would also decrease.

Answer 2

C

Question 3

Harvey Habit in Problem 9 has a utility function U(c₁, c₂) = min{c₁, c₂}. If he had an income of $440 in period 1 and $880 in period 2 and if the interest rate were 20%, how much would Harvey choose to spend on bread in period 1?

A) $1,280
B) $320
C) $213.33
D) $960
E) $640

Answer 3

E

Question 4

Suppose that Molly from Problem 2 had an income of $600 in period 1 and an income of $880 in period 2. Suppose that her utility function were c^a₁c^1-a₂, where a = 0.80 and the interest rate were 10%. If her income in period 1 doubled and her income in period 2 stayed the same, her consumption in period 1 would

A) increase by $240.
B) stay constant.
C) double.
D) increase by $480.
E) increase by $600.

Question 5

Mr. O. B. Kandle, of Problem 8, has a utility function c₁c₂, where c₁ is his consumption in period 1 and c₂ is his consumption in period 2. He has no income in period 2. If he had an income of $40,000 in period 1 and the interest rate increased from 10 to 12%,

A) his consumption in both periods would increase.
B) his savings would increase by 2% and his consumption in period 2 would also increase.
C) his consumption in both periods would decrease.
D) his savings would not change but his consumption in period 2 would increase by 400.
E) his consumption in period 1 would decrease by 12% and his consumption in period 2 would also decrease.

Question 6

If Peregrine in Problem 1 consumes (1, 400, 1, 440) and earns (900, 2, 040) and if the interest rate is 20%, the present value of his endowment is

A) $2,940.
B) $2,600.
C) $5,720.
D) $2,840.
E) $6,620.

Question 7

Suppose that Molly from Problem 2 had an income of $500 in period 1 and an income of $880 in period 2. Suppose that her utility function were c^a₁c^1-a₂, where a = 0.60 and the interest rate were 10%. If her income in period 1 doubled and her income in period 2 stayed the same, her consumption in period 1 would

A) stay constant.
B) increase by $300.
C) double.
D) increase by $150.
E) increase by $500.

Question 8

Suppose that Molly from Problem 2 had an income of $200 in period 1 and an income of $460 in period 2. Suppose that her utility function were c^a₁c^1-a₂, where a = 0.40 and the interest rate were 15%. If her income in period 1 doubled and her income in period 2 stayed the same, her consumption in period 1 would

A) increase by $80.
B) increase by $40.
C) double.
D) stay constant.
E) increase by $200.

Question 9

If Peregrine in Problem 1 consumes (1, 400, 1, 210) and earns (900, 1, 760) and if the interest rate is 10%, the present value of his endowment is

A) $2,660.
B) $2,500.
C) $2,610.
D) $5,250.
E) $6,150.

Question 10

Harvey Habit in Problem 9 has a utility function U(c₁, c₂) = min{c₁, c₂}. If he had an income of $430 in period 1 and $860 in period 2 and if the interest rate were 15%, how much would Harvey choose to spend on bread in period 1?

A) $945
B) $210
C) $315
D) $1,260
E) $630

Question 11

If Peregrine in Problem 1 consumes (1, 500, 880) and earns (1, 300, 1, 100) and if the interest rate is 10%, the present value of his endowment is

A) $4,830.
B) $2,400.
C) $2,300.
D) $2,380.
E) $6,130.

Question 12

If Peregrine in Problem 1 consumes (1, 500, 1, 080) and earns (1, 000, 1, 680) and if the interest rate is 20%, the present value of his endowment is

A) $2,680.
B) $5,280.
C) $2,400.
D) $2,580.
E) $6,280.

Question 13

Suppose that Molly from Problem 2 had an income of $400 in period 1 and an income of $690 in period 2. Suppose that her utility function were c^a₁c^1-a₂, where a = 0.80 and the interest rate were 15%. If her income in period 1 doubled and her income in period 2 stayed the same, her consumption in period 1 would

A) stay constant.
B) increase by $320.
C) increase by $160.
D) double.
E) increase by $400.

Question 14

Harvey Habit in Problem 9 has a utility function U(c₁, c₂) = min{c₁, c₂}. If he had an income of $1,290 in period 1 and $860 in period 2 and if the interest rate were 15%, how much would Harvey choose to spend on bread in period 1?

A) $1,635
B) $363.33
C) $545
D) $2,180
E) $1,090

Question 15

Mr. O. B. Kandle, of Problem 8, has a utility function c₁c₂, where c₁ is his consumption in period 1 and c₂ is his consumption in period 2. He has no income in period 2. If he had an income of $60,000 in period 1 and the interest rate increased from 10 to 17%,

A) his savings would increase by 7% and his consumption in period 2 would also increase.
B) his savings would not change but his consumption in period 2 would increase by 2,100.
C) his consumption in both periods would increase.
D) his consumption in both periods would decrease.
E) his consumption in period 1 would decrease by 17% and his consumption in period 2 would also decrease.

Question 16

If Peregrine in Problem 1 consumes (900, 805) and earns (600, 1, 150) and if the interest rate is 15%, the present value of his endowment is

A) $1,600.
B) $3,440.
C) $1,705.
D) $1,750.
E) $4,040.

Question 17

Mr. O. B. Kandle, of Problem 8, has a utility function c₁c₂, where c₁ is his consumption in period 1 and c₂ is his consumption in period 2. He has no income in period 2. If he had an income of $50,000 in period 1 and the interest rate increased from 10 to 15%,

A) his savings would increase by 5% and his consumption in period 2 would also increase.
B) his savings would not change but his consumption in period 2 would increase by 1,250.
C) his consumption in both periods would increase.
D) his consumption in both periods would decrease.
E) his consumption in period 1 would decrease by 15% and his consumption in period 2 would also decrease.

Question 18

Mr. O. B. Kandle, of Problem 8, has a utility function c₁c₂, where c₁ is his consumption in period 1 and c₂ is his consumption in period 2. He has no income in period 2. If he had an income of $40,000 in period 1 and the interest rate increased from 10 to 19%,

A) his savings would not change but his consumption in period 2 would increase by 1,800.
B) his savings would increase by 9% and his consumption in period 2 would also increase.
C) his consumption in both periods would decrease.
D) his consumption in both periods would increase.
E) his consumption in period 1 would decrease by 19% and his consumption in period 2 would also decrease.

Question 19

Harvey Habit in Problem 9 has a utility function U(c₁, c₂) = min{c₁, c₂}. If he had an income of $420 in period 1 and $1,050 in period 2 and if the interest rate were 10%, how much would Harvey choose to spend on bread in period 1?

A) $240
B) $360
C) $1,440
D) $1,080
E) $720

Question 20

Harvey Habit in Problem 9 has a utility function U(c₁, c₂) = min{c₁, c₂}. If he had an income of $645 in period 1 and $1,290 in period 2 and if the interest rate were 15%, how much would Harvey choose to spend on bread in period 1?

A) $1,417.50
B) $315
C) $1,890
D) $472.50
E) $945

Question 21

In the village in Problem 10, if the harvest this year is 6,000 bushels of grain and the harvest next year will be 900 bushels and if rats eat 10% of any grain that is stored for a year, how many bushels of grain could the villagers consume next year if they consume 1,000 bushels of grain this year?

A) 6,900
B) 5,400
C) 8,100
D) 4,500
E) 1,000

Question 22

Patience has a utility function U(c₁, c₂) , where c₁ is her consumption in period 1 and c₂ is her consumption in period 2. Her income in period 1 is 5 times as large as her income in period 2. At what interest rate will she choose to consume the same amount in period 1 as in period 2?

A) 0.75
B) 0
C) 0.08
D) 0.15
E) 0.23

Question 23

In the village in Problem 10, if the harvest this year is 4,000 bushels of grain and the harvest next year will be 1,200 bushels and if rats eat 10% of any grain that is stored for a year, how many bushels of grain could the villagers consume next year if they consume 1,000 bushels of grain this year?

A) 2,700
B) 5,850
C) 3,900
D) 5,200
E) 1,300

Question 24

In the village in Problem 10, if the harvest this year is 6,000 bushels of grain and the harvest next year will be 1,100 bushels and if rats eat 10% of any grain that is stored for a year, how many bushels of grain could the villagers consume next year if they consume 1,000 bushels of grain this year?

A) 5,600
B) 4,500
C) 7,100
D) 8,400
E) 1,200

Question 25

In the village in Problem 10, if the harvest this year is 4,000 bushels of grain and the harvest next year will be 700 bushels and if rats eat 30% of any grain that is stored for a year, how many bushels of grain could the villagers consume next year if they consume 1,000 bushels of grain this year?

A) 2,800
B) 2,100
C) 4,700
D) 4,200
E) 800

Question 26

Patience has a utility function U(c₁, c₂) , where c₁ is her consumption in period 1 and c₂ is her consumption in period 2. Her income in period 1 is 2 times as large as her income in period 2. At what interest rate will she choose to consume the same amount in period 1 as in period 2?

A) 0
B) 0.08
C) 0.30
D) 0.15
E) 0.23

Question 27

Patience has a utility function U(c₁, c₂) , where c₁ is her consumption in period 1 and c₂ is her consumption in period 2. Her income in period 1 is 3 times as large as her income in period 2. At what interest rate will she choose to consume the same amount in period 1 as in period 2?

A) 0.20
B) 0
C) 0.10
D) 0.60
E) 0.30

Question 28

Patience has a utility function U(c₁, c₂) , where c₁ is her consumption in period 1 and c₂ is her consumption in period 2. Her income in period 1 is 5 times as large as her income in period 2. At what interest rate will she choose to consume the same amount in period 1 as in period 2?

A) 0.10
B) 0
C) 1
D) 0.20
E) 0.30

Question 29

Patience has a utility function U(c₁, c₂) , where c₁ is her consumption in period 1 and c₂ is her consumption in period 2. Her income in period 1 is 3 times as large as her income in period 2. At what interest rate will she choose to consume the same amount in period 1 as in period 2?

A) 0.75
B) 0.13
C) 0.25
D) 0
E) 0.38

Question 30

In the village in Problem 10, if the harvest this year is 4,000 bushels of grain and the harvest next year will be 1,200 bushels and if rats eat 50% of any grain that is stored for a year, how many bushels of grain could the villagers consume next year if they consume 1,000 bushels of grain this year?

A) 4,050
B) 5,200
C) 2,700
D) 1,500
E) 1,300