Question 1

The endowment point is the consumption bundle in which

Accepted Answer

The endowment point is where the consumer's consumption equals their disposable income in each period, meaning they are neither saving nor borrowing.

Question 2

The simplest device to analyze dynamic decisions is a

Accepted Answer

B

Question 3

If the consumer is a lender then

Accepted Answer

D

Question 4

To ensure a well-defined solution to the consumers' intertemporal choice problems,we must assume that consumers' preferences exhibit the properties that

Accepted Answer

Consumers' preferences should exhibit that more is preferred to less (non-satiation) and that the consumer prefers diversity (convexity), ensuring a well-defined intertemporal choice problem.

Question 5

We assume that the representative consumer's preferences exhibit the properties that

Accepted Answer

The answer of We assume that the representative consumer's preferences...

Question 6

Consumption smoothing refers to

Accepted Answer

Consumption smoothing refers to the behavior of consumers who try to minimize large fluctuations in their consumption over time by saving during periods of higher income and drawing on those savings during periods of lower income. Therefore, option B is the correct definition of consumption smoothing. Options A, C, D, and E do not accurately define consumption smoothing.

Question 7

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the horizontal (current consumption)intercept of the consumer's budget line is equal to

Accepted Answer

The answer of If we represents a two-period consumer's lifetime...

Question 8

A consumer's budget constraint in the future period is

Accepted Answer

The future period budget constraint for a consumer is given by the equation c' = y' - t' + (1 + r)s, where c' is future consumption, y' is future income, t' is future taxes, r is the interest rate, and s is savings from the current period.

Question 9

Bonds are assumed to trade directly

Accepted Answer

Bonds are typically traded in the credit market, which is a part of the broader financial market where debt securities are bought and sold.

Question 10

In the two-period model of the economy,

Accepted Answer

The answer of In the two-period model of the economy,
...

Question 11

The consumer's lifetime budget constraint states that

Accepted Answer

The consumer's lifetime budget constraint equates the present value of lifetime consumption to the present value of lifetime disposable income, which is income after taxes.

Question 12

For all bonds to be indistinguishable,

Accepted Answer

All consumers must never be expected to default on their debts because if there is a possibility of default, then the bonds will not be indistinguishable.

Question 13

A consumer's budget constraint in the current period is

Accepted Answer

The budget constraint represents the limit of a consumer's spending ability based on their income and taxes (or transfers). The equation c + s = y - t represents this, where c is consumption, s is savings, y is income, and t is taxes or transfers. The left-hand side of the equation shows the consumer's total resources available for consumption and savings, while the right-hand side shows their income after taxes or transfers. Therefore, the best choice is E.

Question 14

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the vertical (future consumption)intercept of the consumer's budget line is equal to

Accepted Answer

The answer of If we represents a two-period consumer's lifetime...

Question 15

The endowment point is the consumption bundle in which

Accepted Answer

The endowment point is where savings are zero because it represents the initial allocation of resources without any borrowing or lending.

Question 16

Consumption-savings decisions involve intertemporal choice as this is a decision involving a tradeoff between

Accepted Answer

Consumption-savings decisions involve choosing whether to spend money now (current consumption) or save it for later (future consumption). It is a tradeoff between current and future consumption. Therefore, the correct choice is D, current and future consumption.

Question 17

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the slope of the consumer's budget line is equal to

Accepted Answer

The answer of If we represents a two-period consumer's lifetime...

Question 18

Intertemporal decisions involve economic decisions

Accepted Answer

Intertemporal decisions involve choices that have implications or tradeoffs across different periods of time, such as choosing to save money for retirement or spending money now. These choices require individuals to weigh the benefits and costs of current decisions against the potential benefits and costs in the future, making them inherently intertemporal in nature. Therefore, option C is the correct answer.

Question 19

A one-period bond is a promise to repay

Accepted Answer

The answer of A one-period bond is a promise to...

Question 20

A key variable in intertemporal choice is

Accepted Answer

The real interest rate is a key variable in intertemporal choice because it reflects the trade-off between current consumption and future consumption. A high real interest rate makes it more attractive to save and invest for future consumption, while a low real interest rate incentivizes current consumption.

Quiz 9: A Two-Period Model: The Consumption–Savings Decision and Credit Markets

The endowment point is the consumption bundle in which

The simplest device to analyze dynamic decisions is a

If the consumer is a lender then

To ensure a well-defined solution to the consumers' intertemporal choice problems,we must assume that consumers' preferences exhibit the properties that

We assume that the representative consumer's preferences exhibit the properties that

Consumption smoothing refers to

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the horizontal (current consumption) intercept of the consumer's budget line is equal to

A consumer's budget constraint in the future period is

Bonds are assumed to trade directly

In the two-period model of the economy,

The consumer's lifetime budget constraint states that

For all bonds to be indistinguishable,

A consumer's budget constraint in the current period is

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the vertical (future consumption) intercept of the consumer's budget line is equal to

The endowment point is the consumption bundle in which

Consumption-savings decisions involve intertemporal choice as this is a decision involving a tradeoff between

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest,the slope of the consumer's budget line is equal to

Intertemporal decisions involve economic decisions

A one-period bond is a promise to repay

A key variable in intertemporal choice is