For a borrower, an increase in the real interest rate will lead to

For a borrower, an increase in the real interest rate will lead to 

(a) higher current consumption and less borrowing.
(b) higher current consumption and less saving.
(c) lower current consumption and less borrowing.
(d) lower current consumption and less saving.




Answer: C

The substitution effect of a decrease in real interest rates is to cause a consumer to

The substitution effect of a decrease in real interest rates is to cause a consumer to 

(a) increase future consumption and decrease current consumption.
(b) decrease future consumption and increase current consumption.
(c) increase current consumption and increase saving.
(d) decrease current consumption and increase saving.

Answer: B

If Claudette gets a permanent increase in her income of $1000 per year, she saves an extra $200 this year and consumes an extra $800 this year. If the increase in income had been temporary instead of permanent, she would have saved _____ of the extra income.

If Claudette gets a permanent increase in her income of $1000 per year, she saves an extra $200 this year and consumes an extra $800 this year. If the increase in income had been temporary instead of permanent, she would have saved _____ of the extra income. 

(a) More than $200
(b) Less than $200
(c) Exactly $200
(d) None




Answer: B

If Claudette gets a permanent increase in her income of $1000 per year, she saves an extra $200 this year and consumes an extra $800 this year. If the increase in income had been temporary instead of permanent, she would have saved _____ of the extra income.

If Claudette gets a permanent increase in her income of $1000 per year, she saves an extra $200 this year and consumes an extra $800 this year. If the increase in income had been temporary instead of permanent, she would have saved _____ of the extra income. 

(a) More than $200
(b) Less than $200
(c) Exactly $200
(d) None




Answer: A

A curve that connects all the consumption combinations that yield the same level of utility is known as

A curve that connects all the consumption combinations that yield the same level of utility is known as 

(a) an isoquant.
(b) a yield curve.
(c) a budget line.
(d) an indifference curve.




Answer: D

Rachel earns nothing during her learning period, 1100 during her working period, and nothing during her retirement period. She has initial assets of 300. The real interest rate is zero. Rachel is not allowed to borrow by the banks. Whenever possible,Rachel wants to smooth consumption between periods. How much will she save during her working period?

Rachel earns nothing during her learning period, 1100 during her working period, and nothing during her retirement period. She has initial assets of 300. The real interest rate is zero. Rachel is not allowed to borrow by the banks. Whenever possible,Rachel wants to smooth consumption between periods. How much will she save during her working period? 

(a) 400
(b) 550
(c) 700
(d) 950



Answer: B