Question48 Which of the following does the Euler equation state? “The present value of government’s spending must equal the present value of receipts.” “Consumption is a function of permanent income.” “The real interest rate is the nominal interest rate minus inflation.” “The total supply of money is equal to nominal GDP divided by velocity.” “A consumer must be indifferent between consuming one more unit today or in the future.” ResetMaximum marks: 1 Flag question undefined

Question

BlackTom AI · Accepted Answer

To tackle this question, I will assess what the Euler equation represents and then evaluate each statement in light of that concept.
Option 1: “The present value of government’s spending must equal the present value of receipts.” This describes a intertemporal budget constraint for a government, not the Euler equation. The Euler equation deals with consumption choices over time, not the balance between spending and revenue streams, so this option misidentifies the concept.
Option 2: “Consumption is a function of permanent income.” This describes the permanent income hypothesis, which explains how consumption relates to expected long-run income but is not the Euler equation. While related to intertemporal choice, it is a separate theory about consumption patterns, not the Euler equation itself.
Option 3: “The real interest rate is the nominal interest rate minus inflation.” This is the Fisher equation, a fundamental relationship in monetary economics, but it’s not the Euler equation. The Euler equation connects intertemporal consumption decisions with the intertemporal rate of substitution and interest, not the decomposition of rates into real and nominal components.
Option 4: “The total supply of money is equal to nominal GDP divided by velocity.” This is the quantity theory of money (MV = PY rearranged), describing money in the economy, not intertemporal consumption choices. It does not capture the intertemporal optimization that the Euler equation expresses.
Option 5: “A consumer must be indifferent between consuming one more unit today or in the future.” This statement captures the essence of the Euler equation in intertemporal choice: at the optimal path, the marginal utility of consuming today must equal the discounted marginal utility of consuming in the future, adjusted by the real return. It embodies the intertemporal trade-off central to the Euler equation and explains why a consumer balances present and future consumption.
In short, Options 1–4 mix up distinct macroeconomic concepts (government budget constraint, permanent income, Fisher relation, and quantity theory of money) with intertemporal consumption analysis, whereas Option 5 directly expresses the core idea of the Euler equation regarding intertemporal indifference and the substitution between present and future consumption.

查看解析

登录即可查看完整答案

类似问题

In the two-period model with investment, we are confident that an increase in the interest rate will shift consumption downward —even though a higher interest rate increases lifetime wealth— because we are making which of the following assumptions:

Consider the situation represented in the above figure. Which of the following statements are correct? (Select all that apply)

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单