Intertemporal Budget Constraint

question 3

Multiple Choice

Intertemporal Budget Constraint
-Given the table above,suppose consumption in period two is $40,000.Then,the interest rate rises to five percent,and period-two consumption rises to $41,050.We may infer that ________.

• A)the income effect is stronger than the substitution effect
• B)the substitution effect is stronger than the income effect
• C)the substitution and income effects cancel out
• D)this consumer has a binding borrowing constraint

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