Olivia has well-behaved preferences over consumption in two periods, C₁ and c₂. She is a borrower, and regards both c₁ and c₂ as normal goods. If there is a fall in the interest rate then: O Both the substitution and income effects increase her demand for c₁. The substitution effect increases her demand for c₁ while the income effect decreases it. The substitution effect decreases her demand for c₁1 while the income effect increases it. Both the substitution and income effects decrease her demand for c₁.

Olivia has well-behaved preferences over consumption in two periods, C₁ and c₂. She is a borrower, and regards both c₁ and c₂ as normal goods. If there is a fall in the interest rate then: O Both the substitution and income effects increase her demand for c₁. The substitution effect increases her demand for c₁ while the income effect decreases it. The substitution effect decreases her demand for c₁1 while the income effect increases it. Both the substitution and income effects decrease her demand for c₁.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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