If you had a windfall of $5,000 in the present time period and you save some of it, your saving behavior would likely be due to the fact that
A)Your marginal utility of present income falls as your income goes up
B)The extra income changes the slope of your time preference indifference curves making then steeper
C)Your indifference curves for present and future income are vertical
D)Your indifference curves for present and future are horizontal

Question

Quizplus · Accepted Answer

The principle of diminishing marginal utility suggests that as our income goes up, the marginal utility from each additional dollar earned decreases. Therefore, it is rational to save some of the windfall to maximize overall utility. This is because the additional income we save can be used to increase our consumption in the future when our marginal utility of income is higher. B, C, and D are not relevant to the given scenario.

If You Had a Windfall of $5,000 in the Present