Suppose That a Person Can Borrow and Lend at an Interest

question 53

Multiple Choice

Suppose that a person can borrow and lend at an interest rate of 10%.But there is a 5% rate of inflation and the person has to pay an income tax of 30% on all interest income.If the person borrows money, he can deduct interest as an expense.Where current consumption is on the horizontal axis and future consumption is on the vertical axis, the budget line will

• A)have a kink at the point of no saving or lending.
• B)be a straight line with a slope of about -1.02.
• C)be a straight line with a slope of about -1.05.
• D)be a straight line with a slope of about -1.35.
• E)None of the above.

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Definitions:

Average Days

A term that could refer to various average time periods calculated in business contexts, such as average days in inventory, but needs more specificity to define accurately.

Annual Report

A comprehensive document detailing a company's activities and financial performance throughout a given year.

LIFO Inventory Costing

An inventory valuation method that assumes the items of inventory most recently purchased or produced are sold first, with costs of the oldest inventory remaining in stock.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including the cost of materials and labor.