Suppose an individual has a fixed amount of wealth to allocate between consumption in two periods (C₁ and C₂) .Any funds not spent in period 1 will earn interest (at the rate r) ,which will increase purchasing power in period 2.Consider four possible reactions to an increase in r: Which of these is consistent with the hypothesis that both C₁ and C₂ are normal goods?
I.C₁ increases.
II.C₁ decreases.
III.C₂ increases.
IV.C₂ decreases.

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The Answer of Suppose an individual has a fixed amount of wealth to allocate between consumption in two periods (C₁ and C₂).Any funds not spent in period 1 will earn interest (at the rate r),which will increase purchasing power in period 2.Consider four possible reactions to an increase in r: Which of these is consistent with the hypothesis that both C₁ and C₂ are normal goods? I.C₁ increases. II.C₁ decreases. III.C₂ increases. IV.C₂ decreases. A)I,II,III,and IV. B)I,II,and IV,but not III. C)I,III,and IV,but not II. D)II and III,but not I and IV. E)I,II and III,but not IV.

Suppose an Individual Has a Fixed Amount of Wealth to Allocate