Question 1

Those with the least patience

Accepted Answer

Those with the least patience have the greatest time preference, meaning they prefer present consumption over future consumption. This is why they demand a higher nominal interest rate but not necessarily a higher real rate, as they are willing to pay more in the future to consume now. They are less likely to save and engage in consumption smoothing, as they prioritize immediate consumption over long-term financial planning.

Question 2

Time preferences mean

Accepted Answer

Time preferences refer to individuals' preferences for goods and services at different points in time. Option D states that people prefer goods sooner rather than later, which is the correct definition of time preferences. The other options are either incorrect or incomplete definitions of time preferences.

Question 3

If foreign income and wealth decrease,this would most likely

Accepted Answer

If foreign income and wealth decrease, it would cause a decrease in the supply of loanable funds. This is because foreigners would have less money to save or invest, which would result in a decrease in the amount of money available for lending or investment. This would lead to an increase in interest rates and a decrease in investment, which would lower overall economic growth.

Question 4

Most people have a time preference.Since this is true,they

Accepted Answer

People with a time preference typically prefer to consume now rather than later, so they must be paid interest to delay consumption (save now) and are willing to pay interest to consume immediately (save later).

Question 5

In a country,very old and very young people spend more than their incomes.Yet in that same country,the people who are middle-aged tend to save for retirement.If this scenario is true,it best describes

Accepted Answer

This scenario best describes consumption smoothing, which refers to the tendency of individuals to spread their consumption over their lifetime, rather than spending their entire income immediately. The middle-aged population, who are closer to retirement, tend to save more in order to smooth their consumption in retirement. On the other hand, the very old and very young populations may spend beyond their incomes due to limited income-earning capacity or greater dependence on others.

Question 6

If time preferences increase,

Accepted Answer

When time preferences increase, individuals prefer current consumption over future consumption, leading to a decrease in savings and thus a decrease in the supply of loanable funds.

Question 7

If the demographics of a nation change and the average age of the nation is approaching middle age,we would expect

Accepted Answer

As the average age of a nation approaches middle age, individuals typically focus more on saving for retirement, leading to an increase in overall savings.

Question 8

T.D.Goneworth,a financial services firm,makes people want their money and want it now.If the firm is successful in advertising this message and convinces people to believe it,then,all else equal,T.D.Goneworth has

Accepted Answer

If T.D.Goneworth convinces people to want their money now, it increases their time preferences, meaning they prefer present consumption over future consumption.

Question 9

Assume an epidemic hits a nation hard.As a result,people now have lower life expectancies.The most likely result would be

Accepted Answer

In the case of an epidemic, people have lower life expectancies, which means they are likely to save less and spend more on healthcare. Thus, the supply of loanable funds will decrease.

Question 10

A nonprice determinant of the supply of loanable funds would be

Accepted Answer

Household time preferences refer to how much individuals value current consumption versus future consumption. A change in these preferences can affect their decision to save or borrow, and therefore impact the supply of loanable funds. The other choices are all price determinants or factors that affect the demand for loanable funds.

Question 11

Stewart Shopaholic,a compulsive shopper who likes to spend a lot of money all the time,

Accepted Answer

High time preference refers to a preference for immediate consumption over delayed consumption or saving. Stewart Shopaholic's behavior is characterized by spending a lot of money all the time, indicating a higher preference for present consumption over future consumption.

Question 12

A young girl is saving money for a soccer ball but is tempted to buy a book.If the girl buys a book rather than continuing to save for the ball,the

Accepted Answer

Choosing to buy the book rather than saving for the soccer ball indicates that the girl has a higher preference for immediate consumption (low time preferences) over saving for a future purchase (high time preferences).

Question 13

The notion of consumption smoothing means

Accepted Answer

Consumption smoothing refers to the economic concept where individuals seek to maintain a stable level of consumption over their lifetime, despite variations in income. This often involves borrowing in early life, saving during middle years, and dissaving in later years.

Question 14

Typically a college degree is "worth it," but it requires

Accepted Answer

Pursuing a college degree requires individuals to have low time preferences, meaning they are willing to delay immediate gratification for long-term rewards. This is because obtaining a college degree typically requires a significant investment of time, money, and effort, but can lead to higher earning potentials and better job opportunities in the future. Therefore, individuals who have a low time preference are more likely to view the long-term benefits of a college degree as being worth the upfront costs and sacrifices.

Question 15

When people withdraw funds from their savings,economists call this

Accepted Answer

When people withdraw funds from their savings, economists call this dissaving.

Question 16

A young boy is saving money for a baseball bat but is tempted to buy an ice cream cone.If the boy successfully resists buying ice cream and continues to save for the bat,the boy has

Accepted Answer

By resisting the temptation to buy an ice cream cone and continuing to save for the baseball bat, the boy has exhibited high time preferences by valuing the future benefit (the bat) more than the immediate gratification (the ice cream).

Question 17

If life expectancy falls due to AIDS and other diseases,we would expect

Accepted Answer

When life expectancy falls, people tend to value the present more than the future, leading to a rise in time preference and a decrease in savings as they prioritize current consumption over future savings.

Question 18

Based on the relationship between consumption and income,someone in his or her "prime earning years" is most

Accepted Answer

Individuals in their prime earning years typically have higher incomes and are more likely to save for future needs such as retirement, rather than borrowing or focusing on nominal interest rates.

Question 19

Your roommate arrives home and says,"I am so hungry,I would give up my iPhone for a bowl of chili right now." You're famished,too,but you say,"Here is my chili-let's trade." You have a ________ time preference than your roommate,because ________.

Accepted Answer

The answer is B because by giving up the immediate benefit of satisfying your hunger, you are exhibiting a stronger time preference. This means that you place a higher value on long-term benefits rather than immediate ones. You are willing to trade your chili for your roommate's iPhone, which is a long-term benefit, rather than satisfying your immediate hunger.

Question 20

Higher education

Accepted Answer

This is a widely recognized fact that individuals with higher education tend to earn higher lifetime earnings. According to the Bureau of Labor Statistics, individuals with a bachelor's degree have a median weekly earnings of $1,248, compared to $746 for individuals with only a high school diploma. This relationship holds even when controlling for other factors like work experience and occupation. Therefore, higher education generally results in higher lifetime earnings, ceteris paribus.

Quiz 22: Savings,interest Rates,and the Market for Loanable Funds