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6 Cards in this Set
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Why would households be interested only in the real values of consumption, income, and assets such as bonds? Think about how household would feel if the nominal values of consumption, income, and assets all doubled, and the price level, P, also doubled. |
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Distinguish clearly between a houshold's initial asset position and the change in that position. If a household has negative saving, is that household necessarily a borrower in the sense of having a negative position in bonds? |
A change in a households net asset position during a period is a flow variable the accumulated effects of these changes is a stock variable. A person can have $100 and -$10 in savings during a period but have a 90 worth of assets during this period. During this period they have a negative saving but still have positive savings. |
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Derive the budget line shown in Figure 6.2. What does this line show? |
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How does an increase in the real wage rate, w/P, affect the quantity of labor demanded? Where does the assumption of diminishing marginal product of labor (MPL) come in? |
An increase in the real wage rate will decrease the quantity of labor demanded. The demand curve for labor is downward sloping because of the assumption of diminishing product of labor. |
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How does an increase in the real rental price, R/P, affect the quantity of capital services demanded, Kd? Where does the assumption of diminishing marginal product of capital (MPK) come in? |
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Consider a financial intermediary, such as a bank, that participates in the credit market. a. Does the existence of intermediaries affect the result that the aggregate amount of loans is zero? b. What interest rates would the intermediary charge to its borrowers and pay to its lenders? Why must there be some spread between these two rates? c. Can you provide some reason to explain why intermediaries might be useful? |
a. Yes it does because it takes one dollar of borrowing for one dollar of lending. b. |
