Scenario 21-3 Diane Knows That She Will Ultimately Face Retirement.Assume That Diane

Multiple Choice

Scenario 21-3
Diane knows that she will ultimately face retirement.Assume that Diane will experience two periods in her life,one in which she works and earns income,and one in which she is retired and earns no income.Diane can earn $250,000 during her working period and nothing in her retirement period.She must both save and consume in her work period with an interest rate of 10 percent on savings.
-Refer to Scenario 21-3.If the interest rate on savings increases,

A) Diane will decrease her savings in the work period if the income effect is greater than the substitution effect for her.
B) Diane will increase her savings in the work period if the income effect is greater than the substitution effect for her.
C) Diane will increase her savings in the work period if the substitution effect is greater than the income effect for her.
D) Both a and c are correct.