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MicroS01-I.10

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Question from Past Microeconomics Qualifying ExamEdit

Spring 2001 - Section I, Question ten, George Mason University

State first whether the following statements are true, false, or uncertain. Then briefly explain your reasoning in four or five sentences. You may use a graph if it helps clarify your answer.


A decrease in the height of Christmas trees brought to the market implies that there has been a decrease in the rate of interest.

AnswerEdit

False, A decrease in the rate of interest would make the opportunity costs of holding capital in trees lower, therefore people would hold more capital in trees for bigger future profits. In the alternative, shorter trees shows that people are more present oriented, that it makes sense to cut young trees down now and sell them even at depressed prices because the money made from the sale could be put in bonds as the higher interest rate and return more than simply letting the trees stand.

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