Suppose Consumption in Year 2 (C₂)is on the Horizontal Axis

question 65

Multiple Choice

Suppose consumption in year 2 (C₂) is on the horizontal axis and consumption in year 1 (C₁) is on the vertical axis.An increase in the interest rate:

• A)makes borrowers better off and lenders worse off.
• B)causes more people to shift their consumption from year 2 to year 1.
• C)causes the budget line to rotate outward along the horizontal axis.
• D)will reduce savings in year 2.

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Definitions:

Context-Dependent Learning

Context-dependent learning is the phenomenon where the context in which information is learned affects the ability to recall that information.

Mood-Congruent Memory

The tendency to recall information or events that are consistent with one's current mood, influencing and reinforcing emotional states.

Serial Position Effect

A memory phenomenon where items at the beginning and end of a list are more likely to be recalled than those in the middle.

Primacy Effect

The tendency to remember items at the beginning of a list better than those in the middle or at the end.