Assume That Krystal Has Positive Wealth

question 276

Multiple Choice

Assume that Krystal has positive wealth. As the interest rate increased, Krystal increased her current consumption. For Krystal

• A) the substitution effect of an interest rate increase outweighs the income effect.
• B) the income effect of an interest rate increase outweighs the substitution effect.
• C) the substitution effect of an interest rate increase must be zero.
• D) the income effect of an interest rate increase must equal the substitution effect.

---

Definitions:

Positive Reinforcement

A process in psychology which increases the likelihood of a behavior by following it with a desirable outcome or reward.

Flooding

A therapeutic technique used in psychology to treat phobias and anxiety disorders by exposing the patient to their fear object in a controlled environment.

Habituation

The psychological process by which an individual becomes accustomed to a stimulus and consequently decreases their response to it over time.

Shaping

A method used in behavioral psychology to gradually train a new behavior by reinforcing successive approximations of the target behavior.