Asked by
David Raul Salinas
on Oct 14, 2024
Verified
Mr.O.B.Kandle has a utility function c1c2, where c1 is his consumption in period 1 and c2 is his consumption in period 2.He will have no income in period 2.If he had an income of $80,000 in period 1 and the interest rate increased from 10 to 19%,
A) his savings would increase by 9% and his consumption in period 2 would also increase.
B) his savings would not change but his consumption in period 2 would increase by $3,600.
C) his consumption in both periods would increase.
D) his consumption in both periods would decrease.
E) his consumption in period 1 would decrease by 19% and his consumption in period 2 would also decrease.
Utility Function
A mathematical representation of how individual preferences can be quantified over a set of goods and services, reflecting satisfaction levels from their consumption.
Consumption
The process by which households make use of goods and services.
Interest Rate
The portion of a loan accumulating interest for the borrower, usually articulated as an annual percentage of the unpaid loan balance.
- Acquire knowledge on the effect that interest rates have on consumer saving and borrowing patterns.
- Investigate the effects of income distribution shifts over time on consumer behavior.
Verified Answer
FM
Learning Objectives
- Acquire knowledge on the effect that interest rates have on consumer saving and borrowing patterns.
- Investigate the effects of income distribution shifts over time on consumer behavior.