Abigail Has a High Rate of Time Preference While Cynthia

question 86

Multiple Choice

Abigail has a high rate of time preference while Cynthia has a low rate of time preference. If the interest rate payable on savings accounts increases from 5 percent to 7 percent, then

• A)Abigail would find it easier than Cynthia to cut back on consumption and increase her savings.
• B)Cynthia would find it easier than Abigail to cut back on consumption and increase her savings.
• C)neither Abigail nor Cynthia would decrease her consumption and increase her savings because relative time preferences have little to do with the interest rate.
• D)Abigail and Cynthia would probably decrease their consumption and increase their savings by the same amount because the higher interest rate will affect them both to the same degree regardless of their time preferences.

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Definitions:

Wage Rise

An increase in the rate of pay received by employees.

Leave Loading

An additional payment made to employees on their annual leave, often calculated as a percentage of their normal salary.

Work Days

Days on which business is conducted, typically excluding weekends and public holidays.