Assume That We Are Modeling Inter-Temporal Consumption for a Typical

question 78

Multiple Choice

Assume that we are modeling inter-temporal consumption for a typical consumer. Further assume that we measure current consumption on the horizontal axis and future consumption on the vertical axis. A market exists where borrowing and lending can occur for a fixed interest rate, r. Now identify the statement that is false.

• A)When a consumer can lend or borrow at the same interest rate, the consumer's budget constraint is a straight line.
• B)When the rate at which a consumer can borrow is higher than the rate at which the consumer can lend, the consumer's budget constraint is composed of two straight lines with different slopes.
• C)When a consumer cannot borrow money or earn an interest rate for saving money, the consumer's budget constraint is a straight line.
• D)When a consumer has access to financial markets so that he/she can lend or borrow money, his/her budget constraint is expanded when compared to his/her budget constraint without access to financial markets.

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Definitions:

Rate of Return

An investment's growth or shrinkage in value throughout a particular phase, signified as a part of the original investment sum.

Current Stock Price

The present value per share at which a stock is trading in the stock market, reflecting the most recent agreement between buyers and sellers on its price.

EPS Growth Rate

The speed of growth in a company's earnings per share (EPS) throughout a certain timeframe, showcasing the trend in the company's profitability.

Rate of Return

A measure of the gain or loss on an investment over a specific period, expressed as a percentage of the investment's initial cost.