Multiple Choice
Suppose that a person can borrow and lend at an interest rate of 10%.But there is a 5% rate of inflation and the person has to pay an income tax of 30% on all interest income.If the person borrows money, he can deduct interest as an expense.Where current consumption is on the horizontal axis and future consumption is on the vertical axis, the budget line will
A) have a kink at the point of no saving or lending.
B) be a straight line with a slope of about -1.02.
C) be a straight line with a slope of about -1.05.
D) be a straight line with a slope of about -1.35.
E) None of the above.
Correct Answer:
Verified
Correct Answer:
Verified
Q48: Mandy has an income of $800 in
Q49: A utility-maximizing consumer would not choose the
Q50: Harvey Habit has a utility function U(c<sub>1</sub>,
Q51: Isaiah is a net borrower when the
Q52: If the interest rate is 5% and
Q54: The nominal interest rate is 5% and
Q55: If the inflation rate doubles and the
Q56: An increase in the interest rate can
Q57: Holly's utility function is U(c<sub>1</sub>, c<sub>2</sub>)= c<sup>1/2</sup><sub>1</sub>
Q58: I am always indifferent between a unit