Question

If we use a logarithmic utility function, the marginal utility of consumption is:

a. equal to

b. one.

c. equal to

The left-hand side of the Euler equation, , represents the:

a. discount factor.

b. total lifetime consumption, in dollars.

c. growth rate of consumption.

d. lifetime utility function.

e. growth rate of income.

If you see low interest rates, you(r) ________ and consumption growth ________.

a. expect high rates of inflation; speeds up

b. discount the future more; is constant

c. permanent income is constant; is zero

d. save more; increases

e. save less; slows down

Answer 1

* If we use a logarithmic utility function, the marginal utility of consumption is one.

* The left-hand side of the Euler equation, ,represents the growth rate of consumption.

The eulers equation provides the intertemporal option regarding the consumption of individuals during the present and future period.

* if you see low interest rates, you save more and consumption growth increases.

It is because when interest rates are lower, people can borrow money easily. Thus people will be having more money for spending. This will result to increase the inflation rate due to growth of economy.

Thanks!..