Harvey Habit in Problem 9 Has a Utility Function U(c₁

question 7

Multiple Choice

Harvey Habit in Problem 9 has a utility function U(c₁, c₂) = min{c₁, c₂}. If he had an income of $1,290 in period 1 and $860 in period 2 and if the interest rate were 15%, how much would Harvey choose to spend on bread in period 1?

• A) $1,635
• B) $363.33
• C) $545
• D) $2,180
• E) $1,090

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Definitions:

Exchange Rate

The value of one currency for the purpose of conversion to another, determining how much of currency A is needed to purchase a unit of currency B.

Price Levels

A measure reflecting the average cost of a basket of goods and services in an economy, influencing the cost of living and economic health.

Bretton Woods

The Bretton Woods system was a monetary management system that established rules for commercial and financial relations among the United States, Canada, Western Europe, Australia, and Japan after WWII.

International System

A global framework consisting of political, economic, social, and legal rules that govern the relations between nations.