"If Tom Had Twice as Much Money, He Could Consume

question 204

Multiple Choice

"If Tom had twice as much money, he could consume twice as much. If everyone had twice as much money, they could consume twice as much." This quote illustrates

• A) the difference between positive and normative economics.
• B) the fallacy of composition.
• C) that association is not causation.
• D) the law of unintended consequences.

---

Definitions:

Compounded Annually

The method where the interest earned on an investment is calculated annually and added to the principal sum, leading to an increase in the amount of interest earned each year.

Lump Sum

A single payment made at a particular time, as opposed to multiple payments over time.

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage.

Implied Interest Rate

The calculated interest rate derived from comparing the present value of payments or receipts to the original principal amount, often used in lease transactions.