Assume That Krystal Has Positive Wealth

question 276

Multiple Choice

Assume that Krystal has positive wealth. As the interest rate increased, Krystal increased her current consumption. For Krystal

• A) the substitution effect of an interest rate increase outweighs the income effect.
• B) the income effect of an interest rate increase outweighs the substitution effect.
• C) the substitution effect of an interest rate increase must be zero.
• D) the income effect of an interest rate increase must equal the substitution effect.

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Definitions:

Other Income

Revenue generated from non-primary business activities, such as interest, dividends, or the sale of assets.

Multiple-Step Income Statement

A detailed financial statement that separates operating revenues and expenses from non-operating ones, providing a thorough insight into company performance.

Perpetual Inventory System

An inventory management method where updates are made continuously to record every sale and purchase, providing a real-time view of inventory levels.

Inventory

The total amount of goods and materials held by a company for the purpose of resale, production, or use in service delivery.