Suppose an Individual Has a Fixed Amount of Wealth to Allocate

question 3

Multiple Choice

Suppose an individual has a fixed amount of wealth to allocate between consumption in two periods (C₁ and C₂) .Any funds not spent in period 1 will earn interest (at the rate r) ,which will increase purchasing power in period 2.Consider four possible reactions to an increase in r: Which of these is consistent with the hypothesis that both C₁ and C₂ are normal goods?
I.C₁ increases.
II.C₁ decreases.
III.C₂ increases.
IV.C₂ decreases.

• A)I,II,III,and IV.
• B)I,II,and IV,but not III.
• C)I,III,and IV,but not II.
• D)II and III,but not I and IV.
• E)I,II and III,but not IV.

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Definitions:

Ethical Situations

pertain to scenarios or dilemmas where moral considerations and principles must guide decisions and actions, often involving complex judgments.

Perceived Inequity

The feeling of unfairness experienced when an individual perceives an imbalance between their contributions and rewards compared to others.

Reference Group

A social group that an individual uses as a standard for evaluating their own behaviors, beliefs, or attitudes.

Instrumentality

In motivation theory, the perceived relationship between performance and outcomes.