The diagram depicts Julia's choice of consumptions in periods 1 and 2. She has no income in period 1 and an income of $100 in period 2. In scenario 1 the interest rate is 10%, while in scenario 2 it is 78%. Based on this information, which of the following statements is correct? FF (L0% interest rate) FF (78% interest rate) Julia's 100 endowment 38 36 Julia's IC (higher utility) Julia's IC ulia's IC (through point F) Julia's IC (lower utility) 35 56 58 91 Consumption now ($) Select one: o a. The substitution and income effects of the interest rate rise partially offset each other, resulting in lower consumption in period 1 under scenario 2. O b. Julia consumes less in period 1 at G under scenario 2 than at E under scenario 1, because she is less impatient at G. O C. For the scenario of no income in period 1 and an income of $100 in period 2, Julla is unambiguously worse off with an interest rate rise. o d. Julia is able to consume more in period 2 at G under scenario 2 than at E under scenario 1, as her savings earn a higher interest in the former than in the latter. Consumption later ($)

The diagram depicts Julia's choice of consumptions in periods 1 and 2. She has no income in period 1 and an income of $100 in period 2. In scenario 1 the interest rate is 10%, while in scenario 2 it is 78%. Based on this information, which of the following statements is correct? FF (L0% interest rate) FF (78% interest rate) Julia's 100 endowment 38 36 Julia's IC (higher utility) Julia's IC ulia's IC (through point F) Julia's IC (lower utility) 35 56 58 91 Consumption now ($) Select one: o a. The substitution and income effects of the interest rate rise partially offset each other, resulting in lower consumption in period 1 under scenario 2. O b. Julia consumes less in period 1 at G under scenario 2 than at E under scenario 1, because she is less impatient at G. O C. For the scenario of no income in period 1 and an income of $100 in period 2, Julla is unambiguously worse off with an interest rate rise. o d. Julia is able to consume more in period 2 at G under scenario 2 than at E under scenario 1, as her savings earn a higher interest in the former than in the latter. Consumption later ($)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose you have a monthly income of $1000, $850 in monthly expenses, and you can put money in a savings account that yields a monthly interest rate of 4%. Create a budget constraint showing the trade-off between present consumption (horizontal axis) and future consumption (vertical axis). How much will you have in the future if you choose to consume $850 now? Show this point on your budget constraint.
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Do not give handwriting solution.
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