Question

* Which of the following would lead to lower interest rates?

Select one:

a. all of the above

b. households receive news that makes them believe that their incomes will rise in the future

c. a technological innovation that results in a large increase in capital purchases by business

d. the value of households wealth increases due to an unexpecte increase in the value of their stock holdings

* Which of the following would lead to less household saving?

Select one:

a. a temporary increase in household income

b. a permanent decrease in household income

c. a permanent increase in household income

d. a temporary decrease in household income

*The legacy of the government using the rent distribution mechanism is going to be helpful for Oman to reform.

Select one:

True

*The government's commitment to infrastructure and social development has made it easy for the government to cut down its spending.

Select one:

True

False

False

Answer 1

Q1) The answer is (d)  the value of households wealth increases due to an unexpecte increase in the value of their stock holdings

This is a temporary increase in wealth and due to the permanent income hypothesis, this will lead to an increase in savings and a fall in interest rates.

All other options lead to an increase in interest rates and are thus wrong.

Q2) The answer is (c)  a permanent increase in household income.

Thus will lead to consumption smoothing as people will consumer more today in anticipation of higher income and consumption in the future. Savings will thsu fall.