Question 1

Stewart Shopaholic, a compulsive shopper who likes to spend a lot of money all the time,

Accepted Answer

A high time preference refers to a preference for immediate consumption over saving for the future. In this case, Stewart Shopaholic is always spending a lot of money, indicating a preference for immediate consumption rather than saving for the future.

Question 2

If foreign income and wealth decrease, this would most likely

Accepted Answer

If foreign income and wealth decrease, they will likely decrease their demand for loanable funds (since they will have less money to invest or borrow with). This decrease in demand will cause the supply of loanable funds to decrease as well, as lenders will have fewer borrowers to lend money to. Thus, choice C is the most likely outcome.

Question 3

A young girl is saving money for a soccer ball but is tempted to buy a book. If the girl buys a book rather than continuing to save for the ball, the

Accepted Answer

Choosing to buy a book instead of continuing to save for a soccer ball indicates that the girl has prioritized her desire for immediate consumption (buying the book) over her desire for future consumption (saving for the soccer ball). This means the she has exchanged low time preferences (preferring immediate consumption) for high time preferences (preferring future consumption).

Question 4

A nonprice determinant of the supply of loanable funds would be

Accepted Answer

Nonprice determinants are factors that affect the supply of loanable funds that are not directly related to interest rates. Household time preferences refer to the amount of time people are willing to save money rather than spend it, which can affect the amount of funds available for loans. Business profit expectations and government deficits can also affect the supply of loanable funds, but those are price determinants as they relate to the interest rates borrowers are willing to pay. Better technology could potentially affect the demand for loanable funds but not the supply.

Question 5

Your roommate arrives home and says, "I am so hungry, I would give up my iPhone for a bowl of chili right now." You're famished, too, but you say, "Here is my chili-let's trade." You have a _______time preference than your roommate, because _______.

Accepted Answer

By offering to trade your chili for your roommate's iPhone, you are showing that you are willing to give up an immediate benefit (the satisfaction of eating the chili right now) for a long-term one (the potential benefit of having the iPhone). This implies a time preference that is weaker than your roommate's, who would rather have the immediate satisfaction of eating the chili than hold onto their iPhone.

Question 6

T. D. Goneworth, a financial services firm, makes people want their money and want it now. If the firm is successful in advertising this message and convinces people to believe it, then, all else equal, T. D. Goneworth has

Accepted Answer

By convincing people to want their money now and spend it immediately, T. D. Goneworth has effectively caused people to increase their time preferences, meaning they value present consumption more than future consumption.

Question 7

Higher education

Accepted Answer

Studies consistently show that individuals with higher levels of education tend to earn more money over the course of their lifetimes. While there may be exceptions, generally speaking, higher education leads to higher earnings potential.

Question 8

The notion of consumption smoothing means

Accepted Answer

Consumption smoothing refers to the economic concept where individuals balance their spending and saving throughout their lifetime to maintain a stable consumption level. This involves borrowing in years of low income, saving in years of high income, and dissaving (or spending from savings) in retirement, leading to less variation in consumption compared to income over time.

Question 9

A young boy is saving money for a baseball bat but is tempted to buy an ice cream cone. If the boy successfully resists buying ice cream and continues to save for the bat, the boy has

Accepted Answer

By resisting the temptation to buy ice cream and continuing to save for the baseball bat, the boy has exchanged his high time preferences (wanting immediate satisfaction) for low time preferences (being patient and delaying gratification).

Question 10

If the demographics of a nation change and the average age of the nation is approaching middle age, we would expect

Accepted Answer

The answer of If the demographics of a nation change...

Question 11

Most people have a time preference. Since this is true, they

Accepted Answer

Time preference indicates that people prefer to have goods and services sooner rather than later. To delay consumption (save now and consume later), they must be compensated with interest. Conversely, to consume now and save later, they are willing to pay interest.

Question 12

In a country, very old and very young people spend more than their incomes. Yet in that same country, the people who are middle-aged tend to save for retirement. If this scenario is true, it best describes

Accepted Answer

This scenario best describes consumption smoothing, which is the idea that individuals try to maintain a stable level of consumption over time by saving during periods of high income (in this case, the middle-aged individuals) and dis-saving during periods of low income (the very old and very young individuals). This pattern helps to reduce consumption variance and ensure that individuals can maintain a consistent standard of living throughout their lives. Time preferences, nominal interest rates, and the demand for loanable funds are not directly related to this scenario.

Question 13

Those with the least patience

Accepted Answer

Time preference refers to how much someone values present consumption over future consumption. Those with the least patience have the greatest time preference, as they prioritize present consumption over saving for future consumption. This means they are more likely to demand immediate gratification and will not wait to save and invest for future consumption.

Question 14

Assume an epidemic hits a nation hard. As a result, people now have lower life expectancies. The most likely result would be

Accepted Answer

With lower life expectancies, people are less likely to save for the long term and may dip into savings to cover medical expenses or take out loans to cover costs. This leads to a decrease in the supply of loanable funds.

Question 15

When people withdraw funds from their savings, economists call this

Accepted Answer

Withdrawing funds from savings is known as dissaving in economics. This means that individuals are reducing their savings, either through withdrawing cash or liquidating assets, in order to finance their consumption or investment.

Question 16

Time preferences mean

Accepted Answer

Time preferences refer to an individual's willingness to trade goods or services at one point in time for those same goods or services at a different point in time. Generally, people prefer goods sooner rather than later, meaning they have a preference for present consumption over future consumption. This is reflected in higher interest rates for long-term loans compared to short-term loans, as lenders require compensation for delaying their consumption of a portion of their wealth.

Question 17

If time preferences increase,

Accepted Answer

The answer of If time preferences increase,
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Question 18

If life expectancy falls due to AIDS and other diseases, we would expect

Accepted Answer

When life expectancy falls due to diseases like AIDS, individuals are likely to value present consumption more highly than future consumption, leading to an increase in time preference. As a result, people might save less, anticipating a shorter lifespan to enjoy their savings.

Question 19

Based on the relationship between consumption and income, someone in his or her "prime earning years" is most

Accepted Answer

Individuals in their prime earning years typically have higher incomes and are more likely to save for retirement or other future needs, making them more likely to be savers.

Question 20

Typically a college degree is "worth it," but it requires

Accepted Answer

Pursuing a college degree often requires individuals to have low time preferences, as they must delay immediate gratification for several years in order to invest in their education and reap the benefits later in their career. This also requires them to have smoothed consumption, meaning they must budget and plan their finances in a way that allows them to afford the cost of college without experiencing significant fluctuations in their standard of living. The supply of loanable funds may be a factor in financing the cost of college, but it is not a necessary requirement for a college degree to be "worth it."

Quiz 9: Savings, Interest Rates, and the Market for Loanable Funds