Explain the suggestion that people may have their own "personal discount rate" and how that may affect decisions about borrowing and other financial matters.
What will be an ideal response?
A good illustration of this comes from the story of the downsizing by the Defense Department in the 1990s. Military personnel were offered a choice between an annual payment and a lump sum, and were given information about how to calculate the present value of the annual payment using a 7 percent discount rate. The evidence suggests that most people put excessive weight on a "bird in the hand," meaning the "sure thing" of the lump-sum payment, suggesting that for most people their "personal discount rate" is higher. For the military personnel, it seemed to be much higher than 7 percent. This explains why people are more likely to choose lump-sum payments and to borrow at high rates of interest (for example, the rates on credit card balances). Most people seem to be extremely impatient, even to their own financial detriment.
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A) a decrease in the value of consumer durables B) an increase in consumer wealth C) a decrease in consumer confidence D) an increase in income
If investment spending depends on GDP, this is called induced investment
a. True b. False Indicate whether the statement is true or false
If the Federal Reserve wished to engage in contractionary monetary policy, it could
A. increase the primary credit rate. B. increase the reserve ratio. C. sell government debt. D. all of the above.
If the price elasticity of demand for opera tickets in Orlando is 1.00, then the demand for opera tickets in Orlando is
A) unit elastic. B) elastic. C) perfectly inelastic. D) inelastic. E) perfectly elastic.