Suppose that the interest rate paid to savers increases. As a result, Tom wishes to save less. This suggests that, for Tom,
A) the substitution effect is greater than the income effect.
B) the income effect is greater than the substitution effect.
C) utility maximization is not occurring.
D) future consumption is a luxury.
B
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If your marginal rate of substitution between two goods diminishes continuously as you give up one good for the other, that means the
A) price per unit of one good declines when you buy it in larger and larger quantities. B) two goods are perfect substitutes. C) two goods are perfect complements. D) two goods are neither perfect substitutes nor perfect complements.
The following will not cause correlation between X and u in the simple regression model:
A) simultaneous causality. B) omitted variables. C) irrelevance of the regressor. D) errors in variables.