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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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