Consider the Budget Constraint Between "Spending Today" on the Horizontal

question 279

Multiple Choice

Consider the budget constraint between "spending today" on the horizontal axis and "spending a year from today" on the vertical axis. Suppose that you have $100 today and expect to receive $100 one year from today. Your money market account pays an annual interest rate of 25%, and you may borrow money at that interest rate. Suppose now that the interest rate increases to 40%. What happens to the slope of your budget constraint relative to when the interest rate was 25%? The slope

• A)becomes steeper.
• B)becomes flatter.
• C)doesn't change because the budget constraint shifts in parallel to the original budget constraint.
• D)doesn't change because the budget constraint shifts out parallel to the original budget constraint.

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Definitions:

Transfer of Information

The process of conveying or sharing knowledge, data, or facts from one entity to another.

Levels-of-processing

A theory suggesting that the depth (shallow to deep) of mental processing affects memory recall; deeper levels of analysis lead to better recall.

Craik and Lockhart

Psychologists who developed the Levels of Processing model of memory, which suggests that memory retention depends on the depth of processing.

Levels-of-processing Model

A theory suggesting that the depth (shallow to deep) of mental processing affects memory recall, with deeper processing leading to better retention.