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:

Perception

The process by which individuals interpret and organize sensory information to produce a meaningful experience of the world.

Emotions

Complex psychological states that involve a subjective experience, a physiological response, and a behavioral or expressive response.

Perceptual Adaptation

The ability of the body to adjust to an environment by filtering distractions.

Perceptual Constancy

The psychological phenomenon that allows us to perceive objects as unchanging despite changes in sensory input.