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) \(1000 / 1.1 + 1200 / 1.1 + 1\).

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Definitions:

Ise Jingu

A Shinto shrine in Japan, considered one of the most sacred, dedicated to the sun goddess Amaterasu and renowned for its tradition of rebuilding every 20 years.

Honden

Main hall of a Shinto sanctuary.

Early Granary

A storage facility of ancient or early historical periods used for preserving grains and agricultural produce, crucial for sustaining sedentary societies.

Ise Shrine

A Shinto shrine in Japan, dedicated to the goddess Amaterasu, characterized by its unique architecture and tradition of rebuilding every 20 years.