Michael Faces Tradeoffs Between Consuming in the Current Period When

question 372

Multiple Choice

Michael faces tradeoffs between consuming in the current period when he is young and consuming in a future period when he is old. Michael experiences a decrease in the current interest rate he earns on his savings. Michael will save

• A)less in the current period if the substitution effect is greater than the income effect.
• B)less in the current period if the income effect is greater than the substitution effect.
• C)more in the current period if the substitution effect is greater than the income effect.
• D)more in the current period, regardless of the sizes of the income and substitution effects.

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