QUESTION 17

1. In the two-period model of the economy, if the real interest rate stays constant, an increase in the current-period income will lead to ___________.
2. A.no change in future consumption
3. B.increases in both current consumption and savings
4. C.a decrease in current consumption and more savings
5. D.less savings

2 points

QUESTION 18

1. In the two-period model of the economy, suppose that a consumer's current consumption decreases as the real interest rate rises. Which of the following is most likely true about the consumer?
2. A.The consumer could be initially a lender, and the income effect of higher real interest rate is larger than the substitution effect of higher real interest rate.
3. B.The consumer could be initially a lender, and the substitution effect of higher real interest rate is larger than the income effect of higher real interest rate.
4. C.The consumer cannot be an initial lender.
5. D.The consumer cannot be an initial borrower.