In the Fisher Two-Period Model, the Consumer Achieves His or Her

question 114

Multiple Choice

In the Fisher two-period model, the consumer achieves his or her optimum combination of current and future consumption by selecting:

• A) any combination on his or her highest indifference curve.
• B) the combination on his or her highest indifference curve that is tangent to his or her budget constraint.
• C) any combination on his or her budget constraint.
• D) the combination on his or her budget constraint in which period-one consumption equals period-one income and period-two consumption equals period-two income.

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Definitions:

Cash

Refers to currency or assets that can rapidly be converted to currency, used by businesses for transactions and considered a current asset on the balance sheet.

Market Rate

The prevailing interest rate available in the marketplace for investments or loans of a similar risk and maturity profile.

Par Value

The face value of a bond or stock, assigned at the time of issuance, representing the minimum amount the security can be sold for.

Semiannual Interest

Interest that is calculated and paid twice a year, often used in the context of bonds and loans.