If the Collateral Constraint Does Not Bind,then in Response to a Decrease

question 16

Multiple Choice

If the collateral constraint does not bind,then in response to a decrease in the price,p,of the asset

• A) the consumer increases both current and future consumption.
• B) the consumer decreases current consumption and future consumption is unchanged.
• C) the consumer leaves current consumption unchanged and increases future consumption.
• D) the consumer increases current consumption and decreases future consumption.
• E) the consumer decreases both current and future consumption.

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Definitions:

Comparative Advantage

An economic theory stating that an entity is able to produce goods or services at a lower opportunity cost than others, leading to more efficient trading possibilities.

Producing Firewood

The process of cutting, splitting, drying, and preparing wood to be used as fuel for heating or cooking.

Producing Wool

The process of growing, harvesting, and processing wool fibers from sheep or other animals for use in textile production.

Opportunity Cost

The loss of potential gain from other alternatives when one alternative is chosen.