Show that the following preferences are not consistent for a rational individual
i. An individual when confronted with prices of p1 = $4 and p2 = $8 chooses q1 = 1
and q2 = 5.
ii. The same individual facing prices of p1 = $6 and p2 = $9 chooses q1 = 5 and q2 = 3.
The first income level was 4 + 40 = 44. The second income was 30 + 27 = 57. However, at the old prices he could have consumed (5,3 ) and paid only 21, so this indicates that he prefers the first bundle. However, he could have consumed the old bundle at the new prices and paid only 20 + 24 =54, which indicates he prefers the second bundle. Thus a contradiction and his preferences are not consistent
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If you withdraw currency from your bank savings account, you are
A) increasing M1, decreasing M2. B) increasing both M1 and M2. C) decreasing both M1 and M2. D) not affecting M1 or M2. E) increasing M1 but not affecting M2.
Under the liquidity premium theory the shape of the yield curve depends on
A) the relative return of investments in common stocks versus investments in corporate bonds. B) the size of the federal government's budget deficit. C) government tax treatment of long-term versus short-term bonds. D) the expected pattern of future short-term rates and the size of the term premium at each maturity.
The planned investment function will shift downward if
A) real disposable income increases. B) the interest rate falls. C) business expectations become more pessimistic. D) the existing stock of capital decreases.
Demand is inelastic only if
a. price elasticity has an absolute value of 1 b. price elasticity has an absolute value greater than 1 c. price elasticity has an absolute value less than 1 d. price elasticity is negative e. consumers do not respond to a change in price