Macroeconomics Stephen D. Williamson 5th Edition- Test Bank

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Macroeconomics Stephen D. Williamson 5th Edition- Test Bank

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Macroeconomics, 5e (Williamson)
Chapter 11 A Real Intertemporal Model with Investment

1) A consumer may increase her saving by
A) working more hours and consuming more goods in the present period.
B) working more hours and consuming fewer goods in the present period.
C) working fewer hours and consuming more goods in the present period.
D) working fewer hours and consuming fewer goods in the present period.
Answer: B
Question Status: Previous Edition

2) In the real intertemporal model with investment
A) we abstract from labor/leisure choice.
B) consumers always save a constant fraction of their income.
C) there are many different consumers.
D) consumers make choices over current consumption and leisure, and future consumption and leisure.
Answer: D
Question Status: New

3) The condition, MRS1,C = w, describes the representative consumers
A) investment decision.
B) consumption savings decision.
C) current period work leisure decision.
D) future period work leisure decision.
Answer: C
Question Status: Previous Edition

4) In the real intertemporal model with investment, there is intertemporal substitution with respect to
A) consumption and leisure.
B) government spending.
C) capital.
D) current consumption.
Answer: A
Question Status: New

5) The condition, MRS1,C = w , describes the representative consumers
A) investment decision.
B) consumption savings decision.
C) current period work leisure decision.
D) future period work leisure decision.
Answer: D
Question Status: Previous Edition

6) At the end of the future period, in the real intertemporal model with investment
A) the firms capital becomes useless and is thrown away.
B) the firms capital is used to produce more capital for the distant future.
C) the firm can convert capital one-for-one into consumption goods.
D) the firms capital is converted into labor.
Answer: C
Question Status: New

7) The condition, MRSC,C = 1 + r, describes the representative consumers
A) investment decision.
B) consumption savings decision.
C) current period work leisure decision.
D) future period work leisure decision.
Answer: B
Question Status: Previous Edition

8) The assumption that current-period labor supply is positively related to the current-period real wage is justified as long as the
A) income effect dominates the substitution effect in the short run.
B) income effect dominates the substitution effect in the long run.
C) substitution effect dominates the income effect in the short run.
D) substitution effect dominates the income effect in the long run.
Answer: C
Question Status: Previous Edition

9) For the firm in the real intertemporal model with investment
A) depreciation occurs more quickly if the firm produces more output.
B) depreciation takes place at a constant rate.
C) depreciation can be slowed with more maintenance.
D) depreciation is always 100%.
Answer: B
Question Status: Previous Edition

10) In the real intertemporal model with investment
A) the firm maximizes the present value of profits.
B) the firm maximizes current profits.
C) the firm maximizes the present value of revenues.
D) the firm maximizes current profits plus future profits.
Answer: A
Question Status: New

11) The intertemporal substitution of leisure effect is used to justify the assumption that current labor supply increases when the
A) current real wage increases.
B) current real wage decreases.
C) real interest rate increases.
D) real interest rate decreases.
Answer: C
Question Status: Previous Edition
12) When drawn against the current wage, the current labor supply shifts to the right if
A) current taxes increase.
B) future taxes decrease.
C) firms make more profits.
D) total factor productivity increases.
Answer: A
Question Status: Previous Edition

13) An increase in lifetime wealth
A) increase current labor supply and increase current consumption demand.
B) increase current labor supply and decrease current consumption demand.
C) decrease current labor supply and increase current consumption demand.
D) decrease current labor supply and decrease current consumption demand.
Answer: C
Question Status: Revised

14) Any increase in the present value of taxes for the consumer implies
A) an increase in lifetime wealth and an increase in current labor supply.
B) an increase in lifetime wealth and a decrease in current labor supply.
C) a decrease in lifetime wealth and an increase in current labor supply.
D) a decrease in lifetime wealth and a decrease in current labor supply.
Answer: C
Question Status: Previous Edition

15) The demand for current consumption, as plotted against current income, shifts to the right due to all of the following except
A) a decrease in current taxes.
B) a decrease in future taxes.
C) an increase in current income.
D) an increase in future income.
Answer: C
Question Status: Previous Edition

16) The demand for current consumption, as plotted against the interest rate, shifts to the right due to all of the following except
A) a decrease in current taxes.
B) a increase in future taxes.
C) an increase in current income.
D) an increase in future income.
Answer: B
Question Status: Previous Edition

17) The marginal propensity to consume out of income
A) is larger than one.
B) is equal to one.
C) is smaller than one.
D) varies around one.
Answer: C
Question Status: Previous Edition
18) Next periods capital is equal to current-period investment
A) plus the amount of current capital left over after depreciation.
B) minus the amount of current capital left over after depreciation.
C) plus the amount of current period depreciation.
D) minus the amount of current period depreciation.
Answer: A
Question Status: Previous Edition

19) When drawn against the current real wage, the labor demand curve is
A) upward sloping because the marginal product of labor rises with the quantity of labor employed.
B) upward sloping because the marginal product of labor declines with the quantity of labor employed.
C) downward sloping because the marginal product of labor rises with the quantity of labor employed.
D) downward sloping because the marginal product of labor declines with the quantity of labor employed.
Answer: D
Question Status: Previous Edition

20) When drawn against the current real wage, the labor demand curve shift to the right if
A) the interest rate increases.
B) current taxes increase.
C) total factor productivity increases.
D) future capital increases.
Answer: C
Question Status: Previous Edition

21) In determining the benefit of additional investment to the representative firm, we consider the marginal product of
A) current capital.
B) future capital
C) current labor.
D) future labor.
Answer: B
Question Status: Previous Edition

22) The marginal cost of investment for the firm is equal to
A) 1.
B) -1.
C) MPK.
D) -MPK.
Answer: A
Question Status: Previous Edition
23) The marginal cost of investment for the firm is equal to
A) 1.
B) 0.
C) the depreciation rate.
D) the depreciation rate plus the interest rate.
Answer: A
Question Status: Previous Edition

24) The marginal benefit from investment for a firm is equal to
A) .
B) .
C) .
D) .
Answer: C
Question Status: Previous Edition

25) When drawn against the real interest rate, the optimal investment schedule shifts to the right if
A) current total factor productivity z increases.
B) current total factor productivity z decreases.
C) future total factor productivity z increases.
D) future total factor productivity z decreases.
Answer: C
Question Status: Previous Edition

26) Firms discount future profits at the interest rate r because
A) it is the interest rate on their debt.
B) it is the same rate as for households.
C) Ricardian equivalence holds.
D) it has to equal the marginal productivity of capital in equilibrium.
Answer: B
Question Status: Previous Edition

27) When drawn against the real interest rate, the optimal investment schedule shifts to the right if the
A) current capital stock K increases.
B) current capital stock K decreases.
C) future capital stock K increases.
D) future capital stock K increases.
Answer: B
Question Status: Previous Edition
28) If the interest rate goes up, what happens to the investment demand curve?
A) It shifts to the right.
B) It shift to the left.
C) It stays put.
D) We cannot tell.
Answer: C
Question Status: Previous Edition

29) If firm-level asymmetric information becomes more severe, then
A) investment demand increases.
B) investment demand decreases.
C) investment demand does not change.
D) it is impossible to tell.
Answer: B
Question Status: Previous Edition

30) Labor demand depends on the interest rate because
A) household savings depend on the interest rate.
B) firms discount future profits.
C) of Ricardian equivalence.
D) Labor demand actually does not depend on the interest rate.
Answer: D
Question Status: Previous Edition

31) When drawn against the real interest rate, the output supply curve is upward sloping because labor supply is
A) increasing in the real interest rate and labor demand is independent of the real interest rate.
B) decreasing in the real interest rate and labor demand is independent of the real interest rate.
C) independent of the real interest rate and labor demand is increasing in the real interest rate.
D) independent of the real interest rate and labor demand is decreasing in the real interest rate.
Answer: A
Question Status: Previous Edition

32) Output supply is increasing in the interest rate because
A) labor demand is increasing in the interest rate.
B) labor demand is decreasing in the interest rate.
C) labor supply is increasing in the interest rate.
D) labor supply is decreasing in the interest rate.
Answer: C
Question Status: Previous Edition
33) When drawn against the real interest rate, the output supply curve unambiguously shifts to the right if
A) current capital decreases.
B) current total factor productivity decreases.
C) future total factor productivity decreases.
D) current or future taxes increase.
Answer: D
Question Status: Previous Edition

34) When drawn against the real interest rate, output supply increases if
A) current government expenses increase.
B) future government expenses increase.
C) current total factor productivity increases.
D) the money supply increases.
Answer: C
Question Status: Previous Edition

35) When drawn against the real interest rate, output supply increases if
A) the present value of taxes decreases.
B) current capital increases.
C) the interest rate decreases.
D) future total productivity increases.
Answer: B
Question Status: Previous Edition

36) When drawn against current income, the slope of the Cd (r) + Id (r) + G curve is equal to the marginal
A) product of capital.
B) product of labor.
C) propensity to consume.
D) propensity to save.
Answer: C
Question Status: Previous Edition

37) When drawn against the real interest rate, the output demand curve unambiguously shifts to the right if either or both of the following occur.
A) an increase in current taxes and an increase in future taxes
B) an increase in current taxes and a decrease in future taxes
C) a decrease in current taxes and an increase in future taxes
D) a decrease in current taxes and a decrease in future taxes
Answer: D
Question Status: Previous Edition

38) When drawn against the real interest rate, output demand increases if
A) current government expenses increase.
B) future government expenses increase.
C) current taxes increase.
D) future taxes increase.
Answer: A
Question Status: Previous Edition
39) When drawn against the real interest rate, the output demand curve unambiguously shifts to the right if
A) current capital decreases.
B) current total factor productivity decreases.
C) future total factor productivity decreases.
D) current or future taxes increase.
Answer: A
Question Status: Previous Edition

40) When drawn against the real interest rate, the output demand curve shifts to the right when
A) current total factor productivity z increases.
B) current total factor productivity z decreases.
C) future total factor productivity z increases.
D) future total factor productivity z decreases.
Answer: C
Question Status: Previous Edition

41) A temporary increase in government spending that leads to only a small decline in lifetime wealth likely shifts the output demand curve to the
A) right by more than the rightward shift in output supply.
B) right by less than the rightward shift in output supply.
C) left by more than the leftward shift in output supply.
D) left by less than the leftward shift in output supply.
Answer: A
Question Status: Revised

42) Any increase in the present value of taxes implies
A) an increase in lifetime wealth and an increase in the current labor supply.
B) an increase in lifetime wealth and a decrease in the current labor supply.
C) a decrease in lifetime wealth and an increase in the current labor supply.
D) a decrease in lifetime wealth and a decrease in the current labor supply.
Answer: C
Question Status: Previous Edition

43) In response to a temporary increase in government spending, the representative consumer consumes
A) more and takes more leisure.
B) more and takes less leisure.
C) less and takes more leisure.
D) less and takes less leisure.
Answer: D
Question Status: Previous Edition

44) The equilibrium effects of a temporary increase in government spending include
A) an increase in the real wage and an increase in the real interest rate.
B) an increase in the real wage and a decrease in the real interest rate.
C) a decrease in the real wage and an increase in the real interest rate.
D) a decrease in the real wage and a decrease in the real interest rate.
Answer: C
Question Status: Previous Edition
45) The total multiplier of government expenditure is
A) zero.
B) between zero and one.
C) one.
D) larger than one.
Answer: B
Question Status: Revised

46) The total government expenditure multiplier is less than one because
A) government expenses affect labor demand.
B) labor supply reacts to interest rate changes and consumption demand is affected by taxes.
C) investment demand falls dramatically when the government goes into debt.
D) the marginal propensity to consume is less than one.
Answer: B
Question Status: Previous Edition

47) The response of output following a natural disaster includes
A) an increase in output demand and an increase in output supply.
B) an increase in output demand and a decrease in output supply.
C) a decrease in output demand and an increase in output supply.
D) a decrease in output demand and a decrease in output supply.
Answer: B
Question Status: Revised

48) The equilibrium effects of a temporary increase in total factor productivity include
A) an increase in the real wage and an increase in the real interest rate.
B) an increase in the real wage and a decrease in the real interest rate.
C) a decrease in the real wage and an increase in the real interest rate.
D) a decrease in the real wage and a decrease in the real interest rate.
Answer: B
Question Status: Previous Edition

49) How many of the following business cycle facts can be explained if the primary cause of business cycles is temporary changes in total factor productivity: procyclical consumption, procyclical investment, procyclical employment, and procyclical real wages?
A) one
B) two
C) three
D) four
Answer: D
Question Status: Previous Edition

50) The equilibrium effects of a prospective future increase in total factor productivity include
A) an increase in the real wage and an increase in the real interest rate.
B) an increase in the real wage and a decrease in the real interest rate.
C) a decrease in the real wage and an increase in the real interest rate.
D) a decrease in the real wage and a decrease in the real interest rate.
Answer: C
Question Status: Previous Edition

51) In the real intertemporal model, if future total factor productivity increases, this captures the effects of
A) intemporal substitution.
B) Ricardian equivalence.
C) the government expenditure multiplier.
D) news shocks.
Answer: D
Question Status: Previous Edition

52) If future total factor productivity increases
A) labor demand increases.
B) government expenses increase.
C) consumption demand decreases.
D) investment demand increases.
Answer: D
Question Status: Previous Edition

53) In the real intertemporal model, an adverse sectoral shock acts to
A) shift the output demand curve to the left, and the labor supply curve to the left.
B) shift the labor demand and labor supply curves to the left.
C) shift the labor demand curve to the right, and the labor demand curve to the left.
D) shift the output supply curve to the right.
Answer: B
Question Status: New

54) In the real intertemporal model, an adverse sectoral shock acts to
A) reduce real output and reduce the real interest rate.
B) increase real output and increase the real interest rate.
C) increase real output and reduce the real interest rate.
D) reduce real output and increase the real interest rate.
Answer: D
Question Status: New

55) An increase in credit market frictions
A) decreases labor supply.
B) decreases labor demand.
C) decreases consumption demand.
D) decreases investment demand.
Answer: D
Question Status: Revised

56) What could result in an increase of consumption demand and a decrease in labor supply?
A) a drop in current taxes
B) an increase in future taxes
C) a decrease in total factor productivity
D) an increase in government expenses
Answer: A
Question Status: Revised
57) In general equilibrium
A) supply equals demand for all goods in all periods.
B) supply equals demand for most goods in all periods.
C) supply equals demand in present value, but not in all periods.
D) prices are exogenous.
Answer: A
Question Status: Previous Edition

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