Briefly summarize the factors that influence your personal level of consumption spending. Which factor would you say is the single most important determinant of your consumption spending? Why?
What will be an ideal response?
Answers will vary. Students should include a list of factors, such as family disposable income (after-tax income), credit conditions, the level of debt outstanding, the amount of financial assets, and expectations about the economy. Students should also identify which factor is most important to them and why. For example, students might choose their level of debt because their loan payments are very high or their disposable income because they work only part time.
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As a result of losing his job, Uncle Roy dropped his cable TV service and instead bought a new iPod. For Uncle Roy,
A) cable is an inferior good and the iPod is a normal good. B) cable is a normal good and the iPod is an inferior good. C) both cable and the iPod are normal goods. D) both cable and the iPod are inferior goods. E) cable and the iPod are complementary goods.
Which best describes a credit default swap?
A) It is designed to reduce interest-rate risk. B) The issuer receives payments from the buyer in return for agreeing to make payments to the buyer if the security goes into default. C) Issuers are taking out insurance in case of default. D) It represents a way for the issuer to establish its creditworthiness.
In the prisoner's dilemma game, the sentence that each player receives depends on
a. neither strategy chosen b. only the strategy the player chooses c. only the strategy the other player chooses d. the strategy the player chooses and on the strategy the other player chooses e. None of the answers is correct.
If a Central Bank wishes to reduce the supply of money, it should:
(a) Reduce the reserve requirement. (b) Raise the reserve requirement. (c) Instruct banks to reduce their savings rates. (d) Do all of the above.