If Suzette Responds to an Increase in the Interest Rate

question 538

Multiple Choice

If Suzette responds to an increase in the interest rate by decreasing her saving, then, for Suzette,

• A)the increase in the interest rate creates an income effect that is greater than the substitution effect.
• B)the increase in the interest rate creates a substitution effect that is greater than the income effect.
• C)consumption when young and consumption when old are perfect substitutes.
• D)consumption when young and consumption when old are perfect complements.

---

Definitions:

Amortization

Amortization refers to the process of gradually writing off the initial cost of an intangible asset over its useful life, reflecting its consumption or decline in value.

Accumulated Depreciation

The total amount of depreciation that has been recorded for an asset since it was put into use, reducing its book value on the balance sheet.

Trade-in Allowance

The amount credited to the buyer by the seller for a traded-in asset toward the purchase of a new asset.

Cost Basis

The original value or purchase price of an asset or investment, used to calculate capital gains or losses for tax purposes.