Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Question
Chapter 19, Problem 5PA
(a)
To determine
The preference for the type of savings account.
(b)
To determine
The change in the preference.
(c)
To determine
The choices and the theories of consumption.
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Students have asked these similar questions
For each of the following events, consider how you might react. What things might you consume more or less of? Would you work more or less? Would you increase or decrease your saving? Are your responses consistent with the discussion of household behavior in this chapter?
a. You have a very close friend who lives in another city, a 3-hour bus ride away. The price of a round-trip ticket rises from $20 to $45.
b. Tuition at your college is cut 25 percent.
c. You receive an award that pays you $300 per month for the next 5 years.
d. Interest rates rise dramatically, and savings accounts are now paying 10% interest annually.
e. The price of food doubles. (If you are on a meal plan, assume that your board charges double.)
f. A new business opens up nearby offering part-time jobs at $20 per hour.
Which of the following two effects of a decrease in the tax rate on saving would raise savings?
a. the income effect and the substitution effect
b. the income effect but not the substitution effect
c. the substitution effect but not the income effect
d. neither the substitution effect nor the income effect
Jason spends his entire budget on coffee and doughnuts. You have the following data on his
choices:
Table 1: Jason's consumption choice and budget
Price / cup of coffee Price / doughnut cups purchased doughnuts purchased Income
February
2
1
4
22
March
5/2
3/4
10
8
31
April
3
1/2
8
14
31
Assume Jason 's preferences are monotone, the same over the three months, and that he has no
way to save or borrow across periods. Are Jason's choices consistent with utility maximization?
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