If Prisoners X and Y in the Table Shown Could $\text { Prisoner Y }$

question 10

Multiple Choice

If prisoners X and Y in the table shown could develop a credible commitment device, then we would expect                                     $\text { Prisoner Y }$

$\begin{array}{l}\begin{array} { l } &\text { confess} \\\text { Prisoner X } \\&\text { remain silent } \\\end{array}\begin{array} {| l| l|} \hline {\text { confess }} & {\text { remain silent }} \\\hline 10 \text { years each } & \begin{array}{l}\text { 0 years for } \mathrm{X} \\30 \text { years for } \mathrm{Y}\end{array} \\\hline \begin{array}{l}\text { 0 years for } \mathrm{Y} \\30 \text { years for } \mathrm{X}\end{array} & \text { 2 years for each } \\\hline\end{array}\end{array}$

• A)Both prisoners to remain silent
• B)Both prisoners to confess
• C)No specific strategy to dominate their decisions
• D)X will confess.Y will remain silent

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Definitions:

MPS

Marginal Propensity to Save, expressing the portion of additional income that a household saves rather than spends.

Disposable Income

The amount of money that households have available for spending and saving after income taxes have been accounted for. It is a key indicator of economic health and consumer spending.

Consumption

The consumption of products and services by families, an essential element in measuring a nation's Gross Domestic Product (GDP).

Savings

The portion of disposable income not spent on consumption of goods and services, often placed in a deposit account.