Assume That We Are Modeling Inter-Temporal Consumption for a Typical

question 78

Multiple Choice

Assume that we are modeling inter-temporal consumption for a typical consumer. Further assume that we measure current consumption on the horizontal axis and future consumption on the vertical axis. A market exists where borrowing and lending can occur for a fixed interest rate, r. Now identify the statement that is false.

• A)When a consumer can lend or borrow at the same interest rate, the consumer's budget constraint is a straight line.
• B)When the rate at which a consumer can borrow is higher than the rate at which the consumer can lend, the consumer's budget constraint is composed of two straight lines with different slopes.
• C)When a consumer cannot borrow money or earn an interest rate for saving money, the consumer's budget constraint is a straight line.
• D)When a consumer has access to financial markets so that he/she can lend or borrow money, his/her budget constraint is expanded when compared to his/her budget constraint without access to financial markets.

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Definitions:

Inventory

The cumulative inventory of materials and products that a business maintains for the goal of selling or using in production.

Falling Prices

A situation where the general level of prices for goods and services is declining.

LIFO Method

A method of inventory valuation based on the assumption that the most recently acquired items are the first to be sold.

Cost Of Goods Sold

Expenses inherently linked to the manufacturing of a company's products, including the costs of materials and labor.