In the Fisher Two-Period Model, If the Consumer Is a Saver

question 14

Multiple Choice

In the Fisher two-period model, if the consumer is a saver, consumption in periods one and two are normal goods, and the income effect of an increase in interest rate is greater than the substitution effect, then saving:

• A) will increase.
• B) will decrease.
• C) will not change.
• D) may either increase or decrease.

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Definitions:

Direct Controls

Government policies that directly constrain activities that generate negative externalities. Examples include maximum emissions limits for factory smokestacks and laws mandating the proper disposal of toxic wastes.

Economic Efficiency

A situation where resources are allocated in a way that maximizes the net benefit to society or achieves the desired output with the least waste.

Negative Externalities

Costs suffered by a third party as a result of an economic transaction or activity, not reflected in the transaction's price.

Traffic Congestion

A condition on road networks that occurs as use increases, and is characterized by slower speeds, longer trip times, and increased vehicular queueing.