Suppose Reta Is Planning for Retirement in a Two-Period World

question 170

Multiple Choice

Suppose Reta is planning for retirement in a two-period world. In the first period, Reta is young and earns $1 million and in the second period, Reta is old and retired and earns nothing. The interest rate is initially 10 percent, but then it falls to 7 percent. After the interest rate falls, the

• A)substitution effect will induce Reta to consume more when she is young.
• B)substitution effect will induce Reta to consume less when she is young.
• C)income effect will induce Reta to consume more when she is young.
• D)change in interest rates generate a substitution effect but not an income effect.

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Definitions:

Eustress

Positive stress that motivates and energizes individuals, leading to improved performance and well-being.

GAS

Stands for General Adaptation Syndrome, detailing the body's physiological response to stress through stages of alarm, resistance, and exhaustion.

Alarm

A device or system designed to alert individuals to a specific danger or a reminder of an event.

Resistance

The opposition or counteracting force encountered during physical exercises or in the context of infectious agents battling against the immune response.