Given the table above, suppose consumption in period two is $40,000. Then, the interest rate rises to five percent, and period-two consumption rises to $41,050. 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
B
You might also like to view...
Skill-biased technological has different effects on the marginal products of ________ workers and ________ workers.
A. higher-skilled; lower-skilled B. government; private-sector C. male; female D. union; nonunion
In the United States, monetary policy is determined by
A) the Federal Reserve. B) the president. C) private citizens. D) the Treasury Department.
Under laissez-faire, the force that drives the economy toward an efficient outcome is
A. central planning. B. majority voting. C. the pursuit of self-interest. D. altruism.
In developing prospect theory, which of the following did behavioral economists not discover about people's reaction to goods and bads?
A. People feel equivalent losses and gains in equal measure, supporting the assumption that consumers behave rationally. B. People are generally loss averse, feeling losses more intensely than gains. C. People judge good and bad outcomes relative to the status quo. D. People experience both diminishing marginal utility from gains and diminishing marginal disutility from losses.