For Questions Assume That an Individual Consumes Two Goods

question 57

Multiple Choice

For questions assume that an individual consumes two goods X and Y. The total utility (assumed measurable) of each good is independent of the rate of consumption of other goods. The prices of X and Y are, respectively, $5 and $10.

$\begin{array}{lcc}\text { Units of the Good } & \text { TotalUtility of } X & \text { Total Utility of } Y \\1 & 50 & 400 \\2 & 95 & 750 \\3 & 135 & 950 \\4 & 170 & 1100 \\5 & 200 & 1220 \\6 & 225 & 1320 \\7 & 245 & 1400 \\8 & 260 & 1450\end{array}$
-If the consumer has $65 to spend on X and Y, the utility-maximizing bundle is

• A) 3X and 5Y.
• B) 4X and 4Y.
• C) 5X and 2Y.
• D) 1X and 6Y.
• E) 2X and 7Y.

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Definitions:

Purchasing Power

How much goods or services can be bought with one unit of money, indicating the currency's value.

Real Interest Rates

This is the interest rate after inflation adjustment, demonstrating the true cost of loans or the actual gains from savings accounts.

Nominal Interest Rates

The interest rates before adjustments for inflation, indicating the gross return on financial investments or loans.

Inflation

The rate of increase in the general price index for goods and services, leading to a decrease in how much can be bought.