This topic contains a solution. Click here to go to the answer

Author Question: Suppose an individual has a fixed amount of wealth to allocate between consumption in two periods ... (Read 148 times)

meagbuch

  • Hero Member
  • *****
  • Posts: 568
Suppose an individual has a fixed amount of wealth to allocate between consumption in two periods (C1 and C2). Any funds not spent in period 1 will earn interest (at the rate r), which will increase purchasing power in period 2 . Consider four possible reactions to an increase in r: I. C1 increases. II. C1 decreases. III. C2 increases. IV. C2 decreases. Which of these is consistent with the hypothesis that both C1 and C2 are normal goods?
 a. I, II, III, and IV.
  b. I, II, and IV, but not III.
  c. I, III, and IV, but not II.
  d. II and III, but not I and IV.
  e. I, II and III, but not IV.

Question 2

A rise in the real interest rate r
 a. creates income and substitution effects that reduce C0.
  b. creates income effects that reduce C0, substitution effects that increase C0.
  c. creates income effects that increase C0, substitution effects that reduce C0.
  d. creates income and substitution effects that increase C0.



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

SomethingSomething

  • Sr. Member
  • ****
  • Posts: 323
Answer to Question 1

e

Answer to Question 2

c




meagbuch

  • Member
  • Posts: 568
Reply 2 on: Jul 1, 2018
YES! Correct, THANKS for helping me on my review


carlsona147

  • Member
  • Posts: 341
Reply 3 on: Yesterday
Wow, this really help

 

Did you know?

In most cases, kidneys can recover from almost complete loss of function, such as in acute kidney (renal) failure.

Did you know?

If all the neurons in the human body were lined up, they would stretch more than 600 miles.

Did you know?

Computer programs are available that crosscheck a new drug's possible trade name with all other trade names currently available. These programs detect dangerous similarities between names and alert the manufacturer of the drug.

Did you know?

Every flu season is different, and even healthy people can get extremely sick from the flu, as well as spread it to others. The flu season can begin as early as October and last as late as May. Every person over six months of age should get an annual flu vaccine. The vaccine cannot cause you to get influenza, but in some seasons, may not be completely able to prevent you from acquiring influenza due to changes in causative viruses. The viruses in the flu shot are killed—there is no way they can give you the flu. Minor side effects include soreness, redness, or swelling where the shot was given. It is possible to develop a slight fever, and body aches, but these are simply signs that the body is responding to the vaccine and making itself ready to fight off the influenza virus should you come in contact with it.

Did you know?

Approximately 500,000 babies are born each year in the United States to teenage mothers.

For a complete list of videos, visit our video library