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

question 26

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% and income in period 1 is $1000 while income in period 2 is $1200. The point of maximum future 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:

Blocking

A technique used in experimental design to group experimental units with similar characteristics together, in order to reduce the variability caused by these characteristics.

Random Assignment

The process of allocating subjects or experimental units to different groups in an experiment using random methods, to ensure that each group is similar at the start.

Double Blind

A study or experiment design in which neither the participants nor the experimenters know who is receiving a particular treatment, to prevent bias.

Stratifying

The process of dividing a population or sample into subgroups, known as strata, to ensure that research or analysis is more accurate and reflective of the whole.