Chapter 9 Econ

Front 1

A consumer may increase her saving by

Back 1

Working more hours and consuming fewer goods in the present period

Front 2

The condition, MRS l,C,= W, describes the representative consumer's

Back 2

current period work- leisure decision

Front 3

The condition, MRSl',C' = w', describes the representativeconsumer's

Back 3

future period work - leisure decision.

Front 4

The condition, MRSC,C' = 1 +r, describes the representative consumer's

Back 4

consumption -savings decision.

Front 5

The assumption that current-period labor supply is positively relatedto the current-periodreal wage is justified as long as the

Back 5

substitution effect dominates the income effect in theshort run

Front 6

The intertemporal substitution of leisure effect is used tojustify the assumption that current labor supply increases when the

Back 6

real interest rate increases.

Front 7

When drawn against the current wage, the current laborsupply shifts to the right if

Back 7

current taxes increase.

Front 8

An increase in lifetime wealth is likely to

Back 8

decrease current labor supply and increase currentconsumption demand.

Front 9

Any increase in the present value of taxes for the consumerimplies

Back 9

a decrease in lifetime wealth and an increase in currentlabor supply.

Front 10

Any increase in the present value of dividends for theconsumer implies

Back 10

an increase in lifetime wealth and a decrease in currentlabor supply.

Front 11

The assumption that current-period consumption demand is positivelyrelated to the real interest rate is justified as long as the

Back 11

substitution effect dominates the income effect.

Front 12

The demand for current consumption, as plotted against current income, shifts to the right due to all of the following except

Back 12

an increase in current income.

Front 13

The demand for current consumption, as plotted against theinterest rate, shifts to the right due to all of the following except

Back 13

a increase in future taxes.

Front 14

The marginal propensity to consume out of income

Back 14

is smaller than one.

Front 15

The marginal propensity to consume helps explaining whichstylized fact?

Back 15

the low relative volatility of consumption

Front 16

Next period's capital is equal to current-periodinvestment

Back 16

plus the amount of current capital left over afterdepreciation.

Front 17

When drawn against the current real wage, the labor demandcurve is

Back 17

downward sloping because the marginal product of labordeclines with the quantity of labor employed.

Front 18

When drawn against the current real wage, the labor demandcurve shift to the right if

Back 18

total factor productivity increases.

Front 19

In determining the benefit of additional investment to therepresentative firm, we consider the marginal product of

Back 19

future capital

Front 20

The marginal cost of investment for the firm is equal to

Back 20

1.

Front 21

The marginal benefit from investment for a firm is equal to

Back 21

MP'k + 1 + d / (1 + r)

Front 22

When drawn against the real interest rate, the optimalinvestment schedule shifts to the right if

Back 22

future total factor productivity z' increases.

Front 23

Firms discount future profits at the interest rate rbecause

Back 23

it is the same rate as for households.

Front 24

When drawn against the real interest rate, the optimalinvestment schedule shifts to the right if the

Back 24

current capital stock K decreases.

Front 25

Investment will be more variable if the real interest rateis

Back 25

more variable and future total factor productivity is morevariable.

Front 26

If the interest rate goes up, what happens to theinvestment demand curve?

Back 26

It stays put.

Front 27

Labor demand depends on the interest rate because

Back 27

Labor demand actually does not depend on the interest rate.

Front 28

When drawn against the real interest rate, the outputsupply curve is upward sloping because labor supply is

Back 28

increasing in the real interest rate and labor demand isindependent of the real interest rate.

Front 29

Output supply is increasing in the interest rate because

Back 29

labor supply is increasing in the interest rate.

Front 30

When drawn against the real interest rate, the outputsupply curve unambiguously shifts to the right if either or both of thefollowing occur.

Back 30

an increase in current government spending and an increasein future government spending

Front 31

When drawn against the real interest rate, the outputsupply curve unambiguously shifts to the right if

Back 31

current or future taxes increase.

Front 32

When drawn against the real interest rate, output supplyincreases if

Back 32

current total factor productivity increases.

Front 33

When drawn against the real interest rate, output supplyincreases if

Back 33

current capital increases.

Front 34

In a model with money neutrality, how much should the moneysupply be increased to obtain a 1% increase in nominal output?

Back 34

1%

Front 35

In a model with money neutrality, how much should the moneysupply be increased to obtain a 1% increase in real output?

Back 35

It cannot be done.

Front 36

When drawn against current income, the slope of the Cd (r) + ld (r) + G curve is equal to the marginal

Back 36

propensity to consume.

Front 37

When drawn against the real interest rate, the outputdemand curve unambiguously shifts to the right if either or both of thefollowing occur.

Back 37

a decrease in current taxes and a decrease in future taxes

Front 38

When drawn against the real interest rate, output demandincreases if

Back 38

current government expenses increase.

Front 39

When drawn against the real interest rate, the outputdemand curve unambiguously shifts to the right if

Back 39

current capital decreases.

Front 40

Which of these curves is directly affected by a change incurrent capital?

Back 40

output supply

Front 41

When drawn against the real interest rate, the outputdemand curve shifts to the right when

Back 41

future total factor productivity z' increases.

Front 42

A temporary increase in government spending that leads toonly a small decline in lifetime wealth likely shifts the aggregate demandcurve to the

Back 42

right by more than the rightward shift in aggregate supply.

Front 43

A change in current government expenses induces a directshift in which curve?

Back 43

aggregate demand

Front 44

Any increase in the present value of taxes implies

Back 44

a decrease in lifetime wealth and an increase in thecurrent labor supply.

Front 45

In response to a temporary increase in government spending,the representative consumer consumes

Back 45

less and takes less leisure.

Front 46

The equilibrium effects of a temporary increase ingovernment spending include

Back 46

a decrease in the real wage and an increase in the realinterest rate.

Front 47

The equilibrium effects of an anticipated increase infuture government spending include

Back 47

a decrease in the real wage and a decrease in the realinterest rate.

Front 48

In response to a permanent increase in government spending,the permanent income hypothesis would suggest that, to a first approximation,consumption demand should

Back 48

fall exactly as much as the increase in governmentspending.

Front 49

The equilibrium effects of an anticipated increase infuture government spending include

Back 49

a decrease in the real wage and a decrease in the realinterest rate.

Front 50

In response to a permanent increase in government spending,the permanent income hypothesis would suggest that, to a first approximation,consumption demand should

Back 50

fall exactly as much as the increase in governmentspending.

Front 51

According to S. Rao Aiyagari, Lawrence Christiano andMartin Eichenbaum, output

Back 51

increases less with a temporary increase in governmentspending than with a permanent increase in government spending.

Front 52

A likely explanation for the extremely large reduction ininvestment spending during World War II would be

Back 52

that there was much government control over prices and thedistribution of raw materials during the period.

Front 53

The response of output following a natural disasterincludes

Back 53

an increase in aggregate demand and a decrease in aggregatesupply.

Front 54

The equilibrium effects of a temporary increase in totalfactor productivity include

Back 54

The equilibrium effects of a temporary increase in totalfactor productivity include

Front 55

How many of the following business cycle facts can beexplained if the primary cause of business cycles is temporary changes in totalfactor productivity: procyclical consumption, procyclical investment,procyclical employment, and procyclical real wages?

Back 55

four

Front 56

The equilibrium effects of a prospective future increase intotal factor productivity include

Back 56

a decrease in the real wage and an increase in the realinterest rate.

Front 57

If future total factor productivity increases

Back 57

investment demand increases.

Front 58

If consumption demand increases and the labor supplydecreases, it must be that

Back 58

the real wage increases and the interest rate decreases.

Front 59

If consumption demand increases and the labor supplydecreases,

Back 59

output may change either way.

Front 60

What could result in an increase of consumption demand anda decrease in the labor supply?

Back 60

a drop in current taxes

Front 61

In the business cycle models we looked at so far, weassumed that prices (w and r) were

Back 61

completely flexible.

Front 62

In general equilibrium

Back 62

supply equals demand for all goods in all periods.