SOLVED

6) Referring to the table above, the present discounted value of initial wealth plus total income is ________. A) $67,308 B) $71,200 C) $70,400 D) $68,462 7) Which of the following is the correct statement of an intertemporal budget constraint? A) C1 = (1 + r)(W + Y1) – C2 + Y2 B) C2 = (1 + r)(W + Y1 – C1) + Y2 C) W = (1 + r)(Y1 + Y2) – (C1 + C2) D) Y2 = (1 + r)(W + Y1 – C1) 8) Discounting involves dividing next-period income by________. A) one plus the real rate of interest B) the nominal rate of interest. C) current income. D) the real rate of interest. 9) Assuming no bequests, with a real interest rate of 10 percent, wealth of $60,000, current income of $70,000, current consumption of $30,000 and future income of $100,000, future consumption equals ________. A) $30,000. B) #70,000. C) #100,000. D) $210,000. 10) Assuming no bequests, with a real rate of interest of 10 percent, wealth of $60,000, current income of $70,000, future income of $180,000 and future consumption of $158,000, current consumption must equal ________. A) $158,000. B) $150,000. C) $152,000. D) $130,000. 11) The farther an indifference curve lies from the origin ________. A) the greater the level of individual income. B) the lower its utility. C) the lower the level of individual income. D) the higher its utility. 12) Which of the following is not true of all indifference curves? A) they slope downward. B) the point at which one indifference curve intersects another represents an optimal consumption basket. C) they are bowed toward the origin. D) they can intersect with a budget constraint one or more times. 13) If an indifference curve intersects the budget constraint at two points, then ________. A) the consumer would be equally happy at either of those two points B) optimal consumption is found by moving to a lower indifference curve C) optimal consumption is found by moving to a lower budget constraint D) the consumer will choose the point that minimizes consumption expenditure 14) The optimal level of consumption is achieved when ________. A) consumption in one period is equal to consumption in the next period B) utility in one period is equal to utility in the next period C) all income and wealth has been spent D) the slope of the indifference curve is equal to the slope of the budget line. 15) Indifference curves tend to be convex because ________. A) they are bowed inwards toward the origin. B) consumers dislike large fluctuations in consumption from one period to the next. C) of the gap between real and nominal interest rates. D) the marginal rate of substitution exceeds the price effect.