Suppose Reta is planning for retirement in a two-period world. In the first period Reta is young and earns $1 million, and in the second period Reta is old and retired and earns nothing. The interest rate is initially 10 percent, but then it falls to 7 percent. After the interest rate falls, the
a. substitution effect will induce Reta to consume more when she is young.
b. substitution effect will induce Reta to consume less when she is young.
c. income effect will induce Reta to consume more when she is young.
d. change in interest rates affects the substitution effect but not the income effect.
a
You might also like to view...
Suppose that, for example in India, a minimum wage is instituted in the modern sector above the market clearing wage, while the rural traditional wage is market determined at a lower level than in the modern sector
(a) Describe the impact of this policy on the rural labor force, urban unemployment, and the rural wage. (b) Will the modern sector wage be equal to the traditional sector wage after markets equilibrate through migration? Explain. (c) What effect might moving costs have on the equilibrium you described in part (b)? (d) What effect might the introduction of factories to rural areas have no the equilibrium you described in part (b)?
Efficient markets could not result in a real-world outcome such as that evidenced by the prevalence of international poverty in LDCs
Indicate whether the statement is true or false