Dr Issac Parish will live for two periods only. His utility function is U(c1, c2) = c1C2, where c1 is consumption in period 1 and c2 is consumption in period 2. He will have no income in period 2. His income in period 1 is £40,000. If the interest rate rises from 10 to 14%: Select one: O a. his savings will not change but his consumption in period 2 will increase by £800. b. his savings will increase by 4% and his consumption in period 2 will increase. c. his consumption in period 1 will decrease by 14% and his consumption in period 2 will increase. d. his consumption in both periods will decrease. e. his consumption in both periods will increase.

Dr Issac Parish will live for two periods only. His utility function is U(c1, c2) = c1C2, where c1 is consumption in period 1 and c2 is consumption in period 2. He will have no income in period 2. His income in period 1 is £40,000. If the interest rate rises from 10 to 14%: Select one: O a. his savings will not change but his consumption in period 2 will increase by £800. b. his savings will increase by 4% and his consumption in period 2 will increase. c. his consumption in period 1 will decrease by 14% and his consumption in period 2 will increase. d. his consumption in both periods will decrease. e. his consumption in both periods will increase.

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter27: Investment, The Capital Market, And The Wealth Of Nations

Section: Chapter Questions

Problem 14CQ

See similar textbooks

Similar questions

Assuming a mix of present and future consumption is preferred, ANY consumer who starts at point A will gain utility from a rise in interest rates. is it true or false
Suppose that Tyler wants to buy a house and is thinking of using $20,000 that sits in a retirement account for a down payment on this new home. Using the $20,000 as a down payment will reduce Tyler's income when he retires in 30 years. If Tyler can earn an 8%8% annual return on his money if he leaves it in the retirement account, how much will his consumption in retirement be reduced if he uses this money for a down payment now?
Higher interest rates are likely to Group of answer choices decrease consumer spending and increase consumer saving. have no effect on consumer spending or saving. increase consumer spending and decrease consumer saving. decrease both consumer spending and consumer saving.
Jack’s Lock and Key are considering remodeling. It estimates that the remodeling will cost $6,000 and that as a result revenues will rise by $3,000 the first year, $2,500 the second year, $1,500 the third year, and have no effect after then. If the interest rate is 5%, should Jack’s remodel? Defend your answer by showing your work.
suppose that Charlie faces the same choice, but he always integrates the gains or losses of both days regardless of how he chooses to check his investment. Also, assume now that if he decides to check at the end of each day, he has an additional option of pulling all his money out of the stock market at the end of the first day if he wishes. Would Charlie pull his money out at the end of the first day, if he finds that his investment has gone up by $3000? Explain. Would Charlie pull his money out at the end of the first day, if he finds that his investment has gone down by $1000? Explain. Given the investment decisions in Questions (2) and (3), which will he prefer, to check at the end of each day or to check only at the end of the second day?
If Peregrine consumes(1,500,880)and earns(1,300,1,100)and if the interest rate is10%, the present value of his endowment is
Assume a consumer has current-period income y = 200, future-period income y′ = 150, current and future taxes t = 40 and t′ = 50, respectively, and faces a market real interest rate of r = 0.05, or 5% per period. The consumer would like to consume according to the following utility function: U (c, c′ ) = ln(c) + ln(c′ ). Show mathematically the lifetime budget constraint for this consumer. Find the optimal consumption in the current and future periods and optimal saving. Suppose that instead of r = 0.05 the interest rate is r = 0.1. Repeat parts (a) and (b). Does the substitution effect or the income effect dominate?
APPLIED ECONOMICS Topic: Intertemporal Choice Levinn’s utility function is expressed as the following: U= C1 C2 0.3 where C1 is his first periodconsumption and C2 is his second period consumption. His income in the first period is$2500 and interest rate is at 10%. If at equilibrium, Levinn is neither a borrower nor a lender,then what is his expected income in the second period? Show the graph if possible
investment A promises to pay £500,000 profit at the end of the first year, £550,000 at the end of two years, £600,000 at the end of three years, and £625,000 at the end of four years. Investment B promises to pay £25,000 profit at the end of the first year, £100,000 at the end of two years, £600,000 at the end of the third year, and £1,000,000 at the end of four years. Assume that nine percent per year is an appropriate discount rate for each investment. Also, assume a zero-scrap value for each investment at the end of four years. Determine which investment promises to be the better of the two for the company
APPLIED ECONOMICS Topic: Intertemporal Choice Levinn’s utility function is expressed as the following: U= C1 C2 0.3 where C1 is his first periodconsumption and C2 is his second period consumption. His income in the first period is$2500 and interest rate is at 10%. If at equilibrium, Levinn is neither a borrower nor a lender,then what is his expected income in the second period? Do not copy from others
In the two-period Fisher model of consumption, suppose that the first period income is $5,000 and the second period income is $5,000 for both Matt and Paola. The interest rate is 10 percent. Matt’s lifetime utility function is C1 + C2 while Paola’s lifetime utility function is C1 + 0.8C2. If there is a borrowing constraint, whose consumption is affected by that?
Which of the following would both make the interest rate on a bond higher than otherwise? a. the interest it pays is tax exempt and it is short term b. the interest it pays is tax exempt and it is long term c. the interest it pays is taxed and it is long term d. the interest it pays is taxed and it is short term