MrOBKandle Will Live for Only Two Periods

question 60

Multiple Choice

Mr.O.B.Kandle will live for only two periods.In the first period he will earn $100,000.In the second period he will retire and live on his savings.Mr.Kandle has a Cobb-Douglas utility function U(c₁, c₂) = c²₁c₂, where c₁ is his period 1 consumption and c₂ is his period 2 consumption.The real interest rate is r.

• A)If the interest rate rises, Mr.Kandle will save more.
• B)If the interest rises, Mr.Kandle will save less.
• C)He will consume the same amount in each period.
• D)A change in the interest rate won't affect his saving.
• E)None of the above.

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Definitions:

Craving

A powerful desire for something, often used in the context of addictive substances.

Withdrawal

A set of symptoms that occur upon the discontinuation or decrease in intake of a substance that has been used regularly or in psychological contexts, the process of becoming emotionally detached.

Alcohol Dependence

A medical condition characterized by an impaired ability to stop or control alcohol use despite adverse social, occupational, or health consequences.

Tremors

Involuntary, rhythmic muscle movements involving oscillations or shaking of one or more body parts.