As Part of Recent Cutbacks,Paul Just Accepted a 10% Cut

question 103

Multiple Choice

As part of recent cutbacks,Paul just accepted a 10% cut in pay.Now he brews coffee at home instead of stopping at Starbucks every day.Based on this behavior,we can say:

• A)home-brewed coffee is a normal good,and Starbucks coffee is an inferior good for Paul.
• B)home-brewed coffee and Starbucks coffee are substitute goods for Paul.
• C)home-brewed coffee will become a normal good for Paul over time.
• D)We cannot make any of these assumptions about Paul.

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Definitions:

Compounded Monthly

Refers to the process by which the interest earned on an investment is calculated on a monthly basis, with each month's interest being added to the principal for the calculation of subsequent interest.

Compounded Annually

Compounded annually refers to the process where interest is added to the principal sum of a deposit or loan once per year, and future interest is earned on the interest from previous periods as well as the principal.

Time Value

The assertion that money held today is more valuable than equivalent amounts in the future because of its potential for earning.