Will Wisp Will Live for Exactly Two Periods

question 3

Multiple Choice

Will Wisp will live for exactly two periods.His utility function is U(c₁, c₂) = c₁c₂, where c₁ is consumption in period 1 and c₂ is consumption in period 2.He will have no income in period 2.His income in period 1 is $40,000.If the interest rate rises from 10 to 14%:

• A)his savings will increase by 4% and his consumption in period 2 will increase.
• B)his consumption in both periods will increase.
• C)his consumption in both periods will decrease.
• D)his savings will not change but his consumption in period 2 will increase by $800.
• E)his consumption in period 1 will decrease by 14% and his consumption in period 2 will increase.

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Definitions:

Measureable

Capable of being quantified or expressed as a numerical value, allowing for precise assessments or comparisons.

Introspection

The examination or observation of one's own mental and emotional processes.

Mental Imagery

The mind's ability to recreate or simulate sensory experiences in the absence of immediate external stimuli, involving visual, auditory, or other sensory modalities.

Implicit Memory

A type of long-term memory that operates below the conscious level, enabling the performance of tasks without conscious awareness of these previous experiences.