The following diagram depicts Juliaâs choice of consumption in periods 1 and 2. She has no income in period 1 and an income of $115 in period 2. The current interest rate is 15%. Based on this information, which of the following statements is correct?
The maximum that Julia can borrow to spend in period 1 is $91.
If Julia borrows $80 to spend in period 1, she will have $23 to spend in period 2.
The consumption choice of $60 in period 1 and $50 in period 2 is a feasible option.
The feasible set will be smaller when the interest rate is 10%.
The diagram depicts Juliaâs indifference curve for consumption in periods 1 and 2. Based on this information, which of the following statements is correct?
At consumption choice A, Julia places 1.5 times the value of an extra unit of consumption in period 2 as the value in period 1.
Julia is impatient at all points on the indifference curve.
If Julia was more pure impatient then her indifference curve would be steeper at A.
If Julia did not experience diminishing marginal returns to consumption and had no impatience, then her indifference curves would be straight lines with slope exactly equal to -1.
The diagram depicts Juliaâs 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?
Julia is able to consume more in period 2 at G under scenario 2 than at E under scenario 1, as her saving earns a higher interest in the former than in the latter.
Julia consumes less in period 1 at G under scenario 2 than at E under scenario 1, as she is less impatient at G.
The substitution and income effects of the rate rise partially offset each other to result in a lower consumption outcome in period 1 under scenario 2.
For this income scenario of no income in period 1 and an income of $100 in period 2, Julia is unambiguously worse off with an interest rate rise
The diagram depicts Marcoâs choice of consumptions in periods 1 and 2. He has $100 worth of grain in period 1 and no income in period 2. Marco has two choices. In scheme 1, he can store the grain that he does not consume in period 1. This results in a loss of 20% of the grain due to pests and rotting. In scheme 2, he can sell the grain that he does not consume and lend the money at 10%. Based on this information, which of the following statements is correct?
The substitution effect implies that Marco will consume more in period 1 under scheme 2 than under scheme 1.
The income effect implies that Marco will consume more in period 2 and less in period 1 under scheme 2 than under scheme 1.
Marco will unambiguously consume more in period 2 under scheme 2 than in scheme 1.
Marco will unambiguously consume less in period 1 under scheme 2 than in scheme 1.
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