Will Wisp Will Live for Exactly Two Periods

question 24

Multiple Choice

Will Wisp will live for exactly two periods. His utility function is U(c₁, c₂) = c₁c₂, where c₁ is consumption in period 1 and c₂ is consumption in period 2. He will have no income in period 2. His income in period 1 is $80,000. If the interest rate rises from 10 to 12%:

• A) his savings will increase by 2% and his consumption in period 2 will increase.
• B) his savings will not change but his consumption in period 2 will increase by $800.
• C) his consumption in both periods will increase.
• D) his consumption in both periods will decrease.
• E) his consumption in period 1 will decrease by 12% and his consumption in period 2 will increase.

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Definitions:

Ambiguous Words

Words that have more than one meaning or can be interpreted in multiple ways, often leading to confusion or ambiguity in communication.

Directive

A directive can be a formal instruction or order given by someone in authority, or it can refer to guiding principles in psychology and therapy that influence behavior or thought.

Phonological

Pertaining to the system of sounds that a language uses, including patterns of sounds used to encode meaning.

Syntactic

Syntactic relates to the arrangement of words and phrases to create well-formed sentences in a language, following a set of rules and patterns.