Lucas Is Having Trouble Keeping His Spending Within His Budget

question 29

Multiple Choice

Lucas is having trouble keeping his spending within his budget. He decides to cancel his credit card and cuts up his ATM card. Each week he goes to the bank and withdraws only the amount of cash he has budgeted for the week. If he needs more money, he will have to make an extra trip to the bank. This behavior is an example of:

• A)increasing the cost of a vice.
• B)a commitment device.
• C)how people compensate for time-inconsistent decisions.
• D)All of these are correct.

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Definitions:

Required Reserves

The minimum amount of funds that banks are required to hold in reserve against deposits, as mandated by central banks.

Money Supply

The total amount of monetary assets available in an economy at any given time.

Federal Reserve

The central banking system of the United States, responsible for monetary policy, including regulating interest rates and managing the country's money supply.

Required Reserves

Funds that banks must hold in reserve and cannot lend out, either as cash in their vaults or as deposits with a central bank.