The Two-Period Budget Line for Incomes Y₁ and Y₂ and Consumption

question 2

Multiple Choice

The two-period budget line for incomes Y₁ and Y₂ and consumption C₁ and C₂ can be written as ,if the interest rate were to fall the budget line would

• A) shift to the left in a parallel fashion
• B) shift to the right in a parallel fashion
• C) rotate counter-clockwise pivoting on Y₁, Y₂
• D) rotate clockwise pivoting on Y₁, Y₂

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Definitions:

Interest Rate Implicit

The interest rate implicit in a lease is the rate of interest that, when applied to the cash flows of the lease, causes the present value of these flows to equal the fair value of the leased asset at the inception of the lease.

Prepaid Asset

Expenses paid in advance by a company, such as insurance or rent, that are recorded as assets until they are utilized.

Unearned Interest: Leases

Interest that has been collected on a lease but not yet earned, often related to the financing element of leases.

Present Value Factors

Financial multipliers used to calculate the present value of a future amount of money or stream of cash flows based on a specific discount rate.