Mandy Has an Income of $800 in Period 1 and Will

question 31

Multiple Choice

Mandy has an income of $800 in period 1 and will have an income of $500 in period 2. Her utility function is U(c₁, c₂) = c^0.80₁c^0.20₂, where c₁ is her consumption in period 1 and c₂ is her consumption in period 2. The interest rate is .25. If she unexpectedly won a lottery which pays its prize in period 2 so that her income in period 2 would be $1,000 and her income in period 1 would remain $800, then her consumption in period 1 would

• A) stay constant.
• B) double.
• C) increase by $320.
• D) increase by $400.
• E) increase by $320

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Definitions:

Insurance Payment

Money paid to an insurance company for coverage, which can be in the form of premiums, deductibles, or copayments.

Claim Submitted

The process of requesting payment from an insurance company for healthcare services provided.

Medicare-Approved Amount

The predetermined cost that Medicare determines as reasonable for a medical service or supply, which sets the limit on what Medicare will pay and what you may be billed.

Ambulatory Payment Classification

A system used by Medicare and other health insurance programs to pay for outpatient services on a fixed rate based on the diagnosis and procedure rather than individual services provided.