Suppose That Molly Had an Income of $400 in Period

question 18

Multiple Choice

Suppose that Molly had an income of $400 in period 1 and an income of $690 in period 2.Suppose that her utility function were c^a₁c^1-a₂, where a = 0.80 and the interest rate were 15%.If her income in period 1 doubled and her income in period 2 stayed the same, her consumption in period 1 would

• A)stay constant.
• B)increase by $320.
• C)increase by $160.
• D)double.
• E)increase by $400.

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Definitions:

Full-Employment Equilibrium

A scenario where all accessible labor resources are utilized in the most economically effective manner.

Aggregate Supply (AS) Curve

A graphical representation in economics that shows the total supply of goods and services that firms in an economy are willing to produce at a given price level in a given period.

Price Level

The average of current prices across the entire spectrum of goods and services produced in the economy, an indicator of inflation or deflation.

Output Produced

The total quantity of goods and services produced by an economic system during a given period.