Intermediate Macroeconomics I
Economics
Q1. Multiple Choice Questions
1. An increase in real dividend income minus taxes represents
(a) a pure substitution effect.
(b) a pure income effect.
(c) a combination of income and substitution effects.
(d) neither a pure income effect nor a pure substitution effect.
2. The convexity of indifference curves is implied by the assumption that
(a) more is preferred to less
(b) both goods are normal
(c) utility function is increasing
(d) agents love diversity
3. Which of the following changes will enlarge the budget set of an agent?
(a) reduction in wage rate
(b) increase in tax rate
(c) increase in dividend
(d) increase in consumption
4. Which of the followings is not a result of an increase in real wage?
(a) higher consumption due to income effect
(b) higher consumption due to substitution effect
(c) higher leisure due to income effect
(d) higher leisure due to substitution effect
5. Suppose consumption and leisure are perfect complements. An increase in
parameter “a” leads to
(a) higher consumption and lower leisure
(b) higher consumption and higher leisure
(c) lower consumption and higher leisure
(d) lower consumption and lower leisure
Q2. Perfect Substitutes
Suppose consumption and leisure are perfect substitutes with utility function:
u= al+bc
where a,b are constants.
(a) What are the x-intercept, y-intercept and slope of an indifference curve?
Draw a map of indifference curves when a=b=1.
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