In the two-period model, a decrease in income in period 2 causes the budget constraint to
A)shift to the left in a parallel fashion.
B)shift to the right in a parallel fashion.
C)rotate in a clockwise direction along the horizontal axis.
D)rotate in a counterclockwise direction along the vertical axis.

Question

Quizplus · Accepted Answer

A decrease in income in period 2 would cause the budget constraint to shift to the left in a parallel fashion because the consumer would have less money to spend in both periods, resulting in a lower overall budget constraint for the two periods.

In the Two-Period Model, a Decrease in Income in Period