Question

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

a. equal to

b. one.

c. equal to

d. (1/c).

e. equal to c.

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

Answer 1:

Option d. In case of a logarithmic utility function, the marginal utlity of consumption is given by differentiating the utility function with respect to consumption, thus, the marginal utility of consumption is equal to 1/ c.

Answer 2:

Option c. he left-hand side of the Euler equation, , represents the growth rate of consumption in the economy.

Answer 3:

option a. In case of low interest rates, it is expected that inflation in future will increase and consumption growth increases in present.