Question 1
Assume that households have positive wealth. As the interest rate ________, nonlabor income ________ and current consumption ________.
◦ decreases; decreases; decreases
◦ decreases; increases; decreases
◦ increases; increases; decreases
◦ increases; decreases; increases
Question 2
At the beginning of 2017, Albert planned to buy a new home theater system, laptop computer, and hybrid car by borrowing money. Albert already owes $9,000 on other loans. He also planned to buy a new iPod and humidor out of current income. A decrease in interest rates during 2017 will most likely
◦ cause Albert to decide to borrow less money, but not change what he planned to spend on goods purchased with current income.
◦ cause Albert to decide to borrow more money and to spend more on goods purchased with current income.
◦ cause Albert to decide to borrow more money, but not change what he planned to spend on goods purchased with current income.
◦ cause Albert to decide to borrow less money and to spend less on goods purchased with current income.
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