In the Two-Period Utility Maximization Model the Opportunity Cost of One

question 19

Multiple Choice

In the two-period utility maximization model the opportunity cost of one unit of C1 is

• A)one unit of C0.
• B)1 + r units of C0.
• C)1/(1 + r) units of C0.
• D)cannot be determined without more information.

---

Definitions:

Downward Rigidity

A circumstance in which wages or prices are resistant to decrease even in conditions where economic theory suggests they should fall.

Recessions

A temporary downturn in the economy marked by decreased trade and industrial production, typically recognized by a decrease in Gross Domestic Product (GDP) for two consecutive quarters.

Long-Run Aggregate Supply Curve

A graphical representation showing the relationship between the price level and the quantity of output that an economy can produce when all resources are fully employed, assuming no changes in technology or resource availability.

Classical Model

An economic theory that suggests markets function best with minimal government intervention and that supply and demand are the primary forces driving the economy.