Suppose an Individual Has a Fixed Amount of Wealth to Allocate

question 6

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:
I.c₁ increases.
II.c₁ decreases.
III.c₂ increases.
IV.c₂ decreases.
Which of these is consistent with the hypothesis that both c₁ and c₂ are normal goods?

• 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:

Milgram Shock Experiment

A series of social psychology experiments conducted by Stanley Milgram, demonstrating individuals' willingness to obey authority figures, even when actions cause harm to others.

Obedience

The act of following orders or directions from an authority figure.

Experimenter

An individual conducting an experiment, especially in scientific research, to test a hypothesis or demonstrate a known fact.

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A psychological task used to study conformity, in which participants must match lines of different lengths.