Abigail Has a High Rate of Time Preference While Cynthia

question 86

Multiple Choice

Abigail has a high rate of time preference while Cynthia has a low rate of time preference. If the interest rate payable on savings accounts increases from 5 percent to 7 percent, then

• A)Abigail would find it easier than Cynthia to cut back on consumption and increase her savings.
• B)Cynthia would find it easier than Abigail to cut back on consumption and increase her savings.
• C)neither Abigail nor Cynthia would decrease her consumption and increase her savings because relative time preferences have little to do with the interest rate.
• D)Abigail and Cynthia would probably decrease their consumption and increase their savings by the same amount because the higher interest rate will affect them both to the same degree regardless of their time preferences.

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Definitions:

Short-Term Instruments

Financial tools or securities that have a short maturity period, often less than one year, used for investment purposes.

Bookkeeping

The routine recording and organization of financial transactions in a systematic manner, essential for effective financial management.

Record Keeping

The maintenance of accurate and systematic records, particularly for the purposes of managing information and complying with legal requirements.

Financial Position

Financial position refers to the status of an entity's assets, liabilities, and equity at a specific point in time, providing insight into its fiscal health.