Given the table above, suppose consumption in period two is $35,000. Then, the interest rate rises to five percent, and period-two consumption falls to $34,900. We may infer that ________
A) the income effect is stronger than the substitution effect
B) the substitution effect is stronger than the income effect
C) the substitution and income effects cancel out
D) this consumer has a binding borrowing constraint
A
You might also like to view...
What is a minimum wage and what are its effects if it is set above the equilibrium wage?
What will be an ideal response?
What relationships do a firm's short-run cost curves show?
What will be an ideal response?
Suppose the money multiplier in the United States is 3. Suppose further that if the Fed increases the discount rate by 1 percentage point, banks initially change their reserves by 400. To reduce the money supply by 4,200 the Fed should:
A. raise the discount rate by 10.5 percentage points. B. raise the discount rate by 3.5 percentage points. C. reduce the discount rate by 3.5 percentage points. D. reduce the discount rate by 10.5 percentage points.
When all prices are increasing due to inflation:
A. price signals become more difficult to interpret. B. price signals will be confused for quantity signals. C. price signals are easier to interpret than if prices were decreasing. D. prices do not send signals.