The diagram depicts Mary’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 78%, while in scenario 2 it falls to 10%. Based on this
information, which of the following statements is correct?

Question

Answer

The fall
in the interest rate always results in a rise in consumption in both periods.

Answer

The substitution
and income effects of the interest rate fall work in the opposite directions
for consumption in period 2.

Answer

In scenario
1, Mary is better off choosing B than A

Answer

Mary is
more impatient at her optimal choice after the interest rate fall

Crowdly

The diagram depicts Mary’s choice of consumptions in periods 1 and 2. She has n...

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