5 We observe that humans prefer to smooth consumption. If the real interest rate was 0% and youlived for 3 periods and your income in period 1 is 125, period 2 125, & period 3 150: how muchwould you consume in48. Period 150. Period 349. Period 2If the real interest rate rises to 5% the income effect says your should consume more or less in period 1?51.If the real interest rate rises to 5% the substitution effect says your should consume more or less inperiod 1?52.

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We observe that humans prefer to smooth consumption. If the real interest rate was 0% and you lived for 3 periods and your income in period 1 is 125, period 2 125, & period 3 150: how much would you consume in 48. Period 1 50. Period 3

We observe that humans prefer to smooth consumption. If the real interest rate was 0% and you lived for 3 periods and your income in period 1 is 125, period 2 125, & period 3 150: how much would you consume in 48. Period 1 50. Period 3

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

We observe that humans prefer to smooth consumption. If the real interest rate was 0% and you
lived for 3 periods and your income in period 1 is 125, period 2 125, & period 3 150: how much
would you consume in
48. Period 1
50. Period 3
49. Period 2
If the real interest rate rises to 5% the income effect says your should consume more or less in period 1?
51.
If the real interest rate rises to 5% the substitution effect says your should consume more or less in
period 1?
52.

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