In Irving Fisher's Two-Period Consumption Model, If Y₁ = 20,000

question 104

Multiple Choice

In Irving Fisher's two-period consumption model, if Y₁ = 20,000, Y₂ = 15,000, and the interest rate r is 0.50 (50 percent) , then the maximum possible consumption in period two is:

• A) 15,000.
• B) 25,000.
• C) 35,000.
• D) 45,000.

---

Definitions:

Call Option

A call option is a financial contract that gives the holder the right, but not the obligation, to buy a stock, bond, commodity, or other assets at a specified price within a fixed time period.

Risk-Free Rate

The return on an investment with no risk of financial loss, typically represented by the yield on government securities like U.S. Treasury bonds.

Inflation Rate

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Convertible Bond

A type of bond that can be converted into a predetermined amount of the issuer's equity at certain times during its life, usually at the discretion of the bondholder.