If people want to smooth their consumption over time, what will they tend to do when they win the lottery: spend most of it within a year or save most of it for later?
A large number of economic and psychological studies demonstrate that people who are impatient in one area of their life tend to be impatient in other areas as well. This isn’t true in every single case, but of course, that doesn’t matter if we’re trying to understand the “typical person.” Based on your general knowledge and educated guessing:
Who is more likely to smoke: a criminal or a law-abiding citizen?
Who is more likely to shoot heroin: a person who saves 20 percent of their income or a person who can’t ever find a way to save?
Who is more likely to have a lot of credit card debt: a smoker or a nonsmoker?
The typical savings supply curve has a positive slope. If a nation’s saving supply curve had a perfectly vertical slope, what would that mean?
People in this country save the same amount no matter what the interest rate is.
People in this country are extremely sensitive to interest rates when deciding how much to save.
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Consider three countries: Jovenia (average age: 25), Mittelaltistan (average age: 45), and Decrepetia (average age: 75). Based on the lifecycle theory, which of these countries will probably have:
High savings rates?
High rates of borrowing?
High rates of dissaving? (That’s spending your past savings.)
Note: The way for entire countries to save is to build up the stock of productive capital either at home (through high investment rates) or abroad (by exporting more than importing, i.e., running a trade surplus, and using the proceeds to buy foreign investment goods and assets).
Sometimes, in supply and demand models, it’s not clear who “supplies” and who “demands.” For instance, in the labor market, individual workers (not firms) supply labor. In the loanable funds market, who is usually the supplier and who is usually the demander? Choose the correct answer.
Entrepreneurs supply loanable funds and savers demand loanable funds.
Entrepreneurs supply loanable funds and savers also supply loanable funds.
Entrepreneurs demand loanable funds and savers demand loanable funds.
Entrepreneurs demand loanable funds and savers supply loanable funds.
In each of the following, answer either “bank account,” “bonds,” or “stocks.”
Which investment is typically the riskiest?
Which is a corporate IOU?
Which one gives you an ownership “share” in a company?
Which one usually lets you “withdraw” part of your investment at any time, for any reason?
Which form of investment usually spreads your money over the largest number of investment projects?
Which is usually rated by private companies like Moody’s or Standard and Poor’s?
Which one is offered by the U.S. government as well as by private corporations?
If savers don’t feel safe putting their money in banks or buying bonds, what’s the best way to sum up what’s happening in the market for loanable funds?
Supply of savings falls and the interest rate falls.
Supply of savings falls and the interest rate rises.
Demand for savings falls and the interest rate falls.
Demand for savings falls and the interest rate rises.
When governments outlaw high interest rates and the ceiling is binding, what probably happens to the total amount of money borrowed?
It rises because borrowers are protected from high interest rates.
It falls because savers aren’t willing to lend as much money at this low interest rate.
Both a and b are usually true.
If financial intermediation breaks down, what category of GDP will probably fall the most: consumption, investment, government purchases, or net exports?
In a competitive banking system, what tends to happen to banks that make low-interest rate loans to the banker’s friends: Do they tend to be more successful or less successful than other, more ruthless banks?
Given your answer to the previous question, how do you suspect that politicized government-owned banks stay in business?