Suppose an individual has a fixed amount of wealth to allocate between consumption in two periods (cS1U1B11S1U1B0 and cS1U1B12S1U1B0).Any funds not spent in period 1 will earn interest (at the rate r)which will increase purchasing power in period 2.Consider four possible reactions to an increase in r: I.cS1U1B11S1U1B0 increases.
II)cS1U1B11S1U1B0 decreases.
III)cS1U1B12S1U1B0 increases.
IV)cS1U1B12S1U1B0 decreases.
Which of these is consistent with the hypothesis that both cS1U1B11S1U1B0 and cS1U1B12S1U1B0 are normal goods?

January 1, 2023 by admin

I,II,III,and IV. I,II,and IV,but not III. I,III,and IV,but not II. II and III,but not I and IV. I,II and III,but not IV.

See Answer

I,II and III,but not IV.