Homer spends much of his monthly income on home mortgage payments. The interest on his adjustable-rate mortgage falls, lowering his mortgage payments, and Homer decides to move to a larger house (A) The income effect is significant and acts opposite to the substitution effect (B) None is correct (C) The income effect is not significant and acts opposite to the substitution effect (D) The income effect is significant and reinforces the substitution effect
Homer spends much of his monthly income on home mortgage payments. The interest on his adjustable-rate mortgage falls, lowering his mortgage payments, and Homer decides to move to a larger house (A) The income effect is significant and acts opposite to the substitution effect (B) None is correct (C) The income effect is not significant and acts opposite to the substitution effect (D) The income effect is significant and reinforces the substitution effect
Chapter6: Consumer Choice Theory
Section: Chapter Questions
Problem 20SQ
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Homer spends much of his monthly income on home mortgage payments. The interest on his adjustable-rate mortgage falls, lowering his mortgage payments, and Homer decides to move to a larger house
(A) The income effect is significant and acts opposite to the substitution effect
(B) None is correct
(C) The income effect is not significant and acts opposite to the substitution effect
(D) The income effect is significant and reinforces the substitution effect
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