1) ________ will increase current consumption, saving, and future consumption. A) an increase in future income. B) an increase in initial wealth. C) an increase in current income. D) a decrease in the real interest rate 2) Real world economic data supports the view that higher interest rates are associated with ________. A) higher saving and consumption. B) lower saving and higher consumption. C) higher saving and lower consumption. D) lower saving and consumption. 3) The substitution effect that occurs when interest rates change involves a change in consumption that develops from ________. A) a change in the general level of prices. B) a period of increasing productivity. C) a change in the level of income. D) a change in the relative prices of consumption in the two periods. 4) In practice, it is usual to assume that, in explaining the impact of a change in interest rates ________. A) the substitution effects outweigh the income effects. B) the income effect outweighs the substitution effect. C) the income and substitution effects cancel out with one another. D) the income effect increases the severity of the substitution effect. Â Â Â Â Â Â Â Â Â Â 5) Given the table above, the present value of lifetime resources ________ when the real interest rate rises to five percent. A) falls by $367 B) rises by $200 C) rises by $300 D) falls by $275 6) Given the table above, suppose consumption in period two is $35,000. Then, the interest rate rises to five percent, and period-two consumption falls to $34,900. We may infer that ________. A) the income effect is stronger than the substitution effect B) the substitution effect is stronger than the income effect C) the substitution and income effects cancel out D) this consumer has a binding borrowing constraint 7) Given the table above, suppose consumption in period two is $40,000. Then, the interest rate rises to five percent, and period-two consumption rises to $41,050. We may infer that ________. A) the income effect is stronger than the substitution effect B) the substitution effect is stronger than the income effect C) the substitution and income effects cancel out D) this consumer has a binding borrowing constraint 8) Given the table above, suppose consumption in period two is $40,000. Then, the interest rate rises to five percent, and period-two consumption does not change. We may infer that ________. A) the income effect is stronger than the substitution effect B) the substitution effect is stronger than the income effect C) the substitution and income effects cancel out D) this consumer has a binding borrowing constraint 9) For the majority of the U.S. population ________. A) consumption is driven solely by current income. B) consumption smoothing is possible. C) a change in lifetime resources will not change current consumption. D) a change in lifetime resources will not change future consumption. 10) For consumers with a binding borrowing constraint, a decrease in the real interest rate ________. A) decreases consumption now, and in the future B) increases consumption now, and in the future C) decreases consumption now, and increases future consumption D) has no impact on consumption