Essay
Suppose you know I are only about consumption this year and consumption next year.Suppose also that I have an income this year but do not expect to have an income next year.Explain your answers.
a.You notice that I save more after the interest rate falls.Can you tell whether "consumption now" is a normal,inferior or Giffen good?
b.Suppose I also received an unexpected raise at work and you overhear me say: "Cool,I am even Steven.Now that I have my raise,I am just as happy as I was before the interest rate fell and I did not yet have a raise." Without knowing anything more,can you tell whether I consume more or less next year than I would have consumed had neither of the two changes happened?
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a.Yes,you can tell.A drop in the interes...View Answer
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