When Analyzing How Borrowing and Lending Affect the Consumer's Budget $1000 + 1200 / 1.1$

question 44

Multiple Choice

When analyzing how borrowing and lending affect the consumer's budget constraint, we measure spending in the current time period on the horizontal axis and spending in the future time period on the vertical axis. Assume that the interest rate at which the consumer can lend and borrow is 10%, income in period 1 is $1000 and income in period 2 is $1200. The point of maximum current consumption can be expressed as:

• A) \(1000 + 1200 / 1.1\).
• B) \(1000 ( 1.1 ) + 1200\).
• C) \(1000 + 1200 + .1\)
• D) \(1000 / 1.1 + 1200 / 1.1 + 1\).

---

Definitions:

Masking

A method in perceptual research where a visual stimulus is made less visible to the observer by the presence of another stimulus, hindering the ability to perceive or process the first stimulus.

Memory Recall

The process of retrieving information stored in long-term memory, bringing it into conscious awareness.

Fluid Intelligence

The capacity to solve novel problems, use logic in new situations, and identify patterns.

Working Memory Capacity

The amount of information that can be held and manipulated in working memory at one time, which plays a critical role in comprehension, learning, and reasoning.