An Economy Has 100 Households

question 52

Multiple Choice

An economy has 100 households.The forty rich households each have incomes of $50,000 in period 1 and $75,000 in period 2.The sixty poor households each have incomes of $20,000 in period 1 and $25,000 in period 2.Assume that the price of the good is $1 in both periods.Also assume that the households borrow from each other.Suppose that each household decides that its consumption in period 1 will equal 50 percent of the present value of its income from both periods.The equilibrium real interest rate is about

• A)20 percent.
• B)30 percent.
• C)40 percent.
• D)50 percent.

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Definitions:

Ideation

The creative process of generating, developing, and communicating new ideas, whether abstract or concrete.

Prototypes

Early models or samples of a product built to test a concept or process, used for demonstrations and feedback before final production.

Discovery

The process of finding information, places, or objects, especially for the first time, or the act of unveiling something not previously known.

Percentage of Ad Spend Method

A budgeting technique for advertising in which the budget is set based on a fixed percentage of the company’s sales or projected sales, making it a simple and commonly used method for allocating advertising funds.