If a Consumer Views a Unit of Consumption in Period

question 14

Multiple Choice

If a consumer views a unit of consumption in period 1 as a perfect substitute (one for one) for a unit of consumption in period 2 and if the real interest rate is positive, the consumer will

• A)consume only in period 1.
• B)consume only in period 2.
• C)consume equal amounts in each period.
• D)consume more in period 1 than in period 2 if income elasticity exceeds 1, otherwise consume more in period 2 than in period 1.
• E)equalize expenditures but not consumption in the two periods.

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Definitions:

Above-The-Line

refers to deductions that taxpayers are allowed to subtract from gross income to arrive at the adjusted gross income, which are beneficial as they are not subject to itemized deductions limitations.

Child Support Payment

Payments made by a non-custodial parent to support their child or children's living expenses.

Alimony Payment

Payments made to a spouse or former spouse under a separation or divorce agreement, which can be deductible for the payer and reportable as income for the recipient, under certain conditions.

Early Withdrawal Penalty

A fee charged for withdrawing funds from an investment or savings account before a specified date.