In Irving Fisher's Two-Period Model, If the Consumer Is Initially

question 34

Multiple Choice

In Irving Fisher's two-period model, if the consumer is initially a saver and the interest rate increases, and first-period consumption decreases, then we can conclude that the income effect:

• A)was greater than the substitution
• B)effect. was less than the substitution effect.
• C)exactly offset the substitution effect.
• D)and the substitution effect both decreased consumption.

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Definitions:

Cognition

Refers to the mental processes involved in gaining knowledge and comprehension, including thinking, knowing, remembering, judging, and problem-solving.

Attitude

A psychological construct representing an individual's degree of like or dislike, favorability or unfavourability, towards an object, person, thing, or event.

Cognitive Dissonance

A theory which suggests that people experience psychological discomfort or stress when they hold two or more contradictory beliefs, ideas, or values at the same time.

Machiavellianism

A personality characteristic involving one’s willingness to do whatever it takes to get one’s own way.