An Individual Is Considering Consumption in Two Periods

question 10

Multiple Choice

An individual is considering consumption in two periods.He has decided to borrow $1,000 in period 1,given his endowment and the interest rate.Other things remaining the same,if the interest rate increases,he will:

• A)borrow less than $1,000.
• B)continue to borrow $1,000.
• C)borrow more than $1,000.
• D)borrow more or less depending upon whether or not the substitution effect of the change is greater than the income effect.

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Definitions:

Cash Returns

Financial returns or profits that are received in the form of cash, as opposed to stock dividends or other non-liquid forms of return.

Inventory

Goods and materials held by a company for the ultimate goal of resale or production, including raw materials, work-in-progress, and finished goods.

Bank Credit Cards

Financial instruments issued by banks allowing cardholders to borrow funds up to a pre-approved limit for purchases or cash advances.

Credit Card Expense

Costs incurred from using a credit card, including interest charges, annual fees, and transaction fees.