2) Yoni spends his income on consumption between two periods - C1 and C2. Both C1 and C2 are normal goods. Assume that in the initial position, Yoni's income in the first period is equal to his income in the second period. Yoni is indifferent between the present and the future and faces a convex utility function. The interest rate is equal to the inflation rate in the initial position. Draw Yoni's budget constraint and his optimal bundle. Point out C1 and C2 in the optimal bundle, the intercepts and the slope. Are Yoni's savings positive/negative/zero? Explain. What will happen to Yoni's utility if the inflation rate decreases and the interest rate increases? Point out the range of the new bundle. a. b. C.
2) Yoni spends his income on consumption between two periods - C1 and C2. Both C1 and C2 are normal goods. Assume that in the initial position, Yoni's income in the first period is equal to his income in the second period. Yoni is indifferent between the present and the future and faces a convex utility function. The interest rate is equal to the inflation rate in the initial position. Draw Yoni's budget constraint and his optimal bundle. Point out C1 and C2 in the optimal bundle, the intercepts and the slope. Are Yoni's savings positive/negative/zero? Explain. What will happen to Yoni's utility if the inflation rate decreases and the interest rate increases? Point out the range of the new bundle. a. b. C.
Chapter17: Capital And Time
Section: Chapter Questions
Problem 17.8P
Related questions
Question
![2) Yoni spends his income on consumption between two periods
C1 and C2. Both C1 and C2 are normal goods. Assume that in
the initial position, Yoni's income in the first period is equal to
his income in the second period. Yoni is indifferent between the
present and the future and faces a convex utility function. The
interest rate is equal to the inflation rate in the initial position.
a.
b.
C.
Draw Yoni's budget constraint and his optimal bundle. Point
out C1 and C2 in the optimal bundle, the intercepts and the slope.
Are Yoni's savings positive/negative/zero? Explain.
What will happen to Yoni's utility if the inflation rate
decreases and the interest rate increases? Point out the range of
the new bundle.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd7e3a8f9-0b31-43fa-8644-8b6dd13b0c5a%2F58d8205b-b193-4ab1-ac2e-271643e5a530%2Ff647t8f_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2) Yoni spends his income on consumption between two periods
C1 and C2. Both C1 and C2 are normal goods. Assume that in
the initial position, Yoni's income in the first period is equal to
his income in the second period. Yoni is indifferent between the
present and the future and faces a convex utility function. The
interest rate is equal to the inflation rate in the initial position.
a.
b.
C.
Draw Yoni's budget constraint and his optimal bundle. Point
out C1 and C2 in the optimal bundle, the intercepts and the slope.
Are Yoni's savings positive/negative/zero? Explain.
What will happen to Yoni's utility if the inflation rate
decreases and the interest rate increases? Point out the range of
the new bundle.
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