3. Anya has a two-period horizon. She has the utility function u(c1, c2) = 2ln(cı) + In(c2),where c; is her consumption in period j. Her income is Mj in period j. Assume that M1 =7,000 and M2 = 9,600. The interest rate at which she can borrow and lend is 20%.(i) Find the equation for Anya's budget line.(ii) Find her optimal bundle.(iii) Explain whether her utility would rise or fall if the interest rate were to fall slightly.(iv) NowExplain why her optimal bundles here and in (ii) are related as they are!əsoddnsthat the interest rate is again 20% and Anya has M1 = 0 and M2 = 18,000.

Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and…

Answered: 3. Anya has a two-period horizon. She…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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How does savings change with changes in y2? Provide some intuition behind this result.
Home maximizes its lifetime discounted utility subject to the budget constraint it faces, i.e., max U = In C₁ + 0.7 In C₂ such that C₁ + B₂ = 700 C₂ = 700 + (1+r) B₂. Suppose that the autarky (without trade) interest rate r = 0.04 and the world interest rate, or the world equilibrium interest rate r = 0.03. In autarky, consumption in period 1 equals (1) and consumption in period 2 equals (2) With trade, consumption in period 1 equals (3) while consumption in period 2 equals (4) Since the autarky interest rate is (5) than the world interest rate, the relative price of period 1 consumption in autarky will be (6) than its price with trade. In line with the Principle of Comparative Advantage, the domestic economy in period 1 and (8) in period 2. The first-period current account balance is (9) will (7) while the second-period current account balance is (10) Now suppose that both period 1 and 2 incomes decrease by 100. Period 1 consumption will now equal (11) while period 2 consumption will…
If you draw the cash flows from any investment, you would have negative cash flows at the beginning, and then you would receive a stream of positive cash flows thereafter. So why do we need the separate concept of a J-curve? In other words, what is the difference between a J-curve and the cash profile of any other investment?
A6.
Consider a two-period consumption saving model and let ci and c2 denote the first and second period consumption, respectively. Assume that the interest rate at which the consumer may lend or borrow is 10%. Suppose that a consumer's utility function is u (C1, c2) = c1 + 20 c2. The consumer first period income is I1 = $100 and the present value of her income stream is $330. (a) What is the optimal consumption stream (consumption bundle) of this consumer? (b) Is this consumer borrower or lender? How much does she borrow or lend? (c) What is the effect of a reduction of the interest rate to 5% on the consumer's optimal first-period saving? (Make sure to take into account the effect of the decline in the interest rate on the present value of the consumer's income stream.)
John has the following utility function U(C₁, C2) = min{c₁ + ac2, C2}, where C₁ and c₂ are his consumption in periods 1 and 2, respectively and a is some positive constant. Suppose John has $100 income in period 1 and $105 income in period 2. Prices in both periods are $1. Question 2 Part al Suppose a = 2. If John can freely borrow and lend at 5% interest rate what would be his optimal consumption in both periods? 1 Question 2 Part a2 Suppose a = 2. Now, John can lend at 5% interest rate, but can't borrow at all. What would be his optimal consumption in both periods? Question 2 Part bl Suppose a 0.5. If John can freely borrow and lend at 5% interest rate what would be his optimal consumption in both periods? Question 2 Part b2 Suppose a 0.5. Now, John can lend at 5% interest rate, but can't borrow. What would be his optimal consumption in both periods?
Consider a two-period model in which you work and save in the initial period (period 0) and live off savings and the interest from savings in retirement (period 1). Suppose that income in period 0 is $250,000, income in period 1 is $0, and the interest rate is 50%. Suppose that preferences are such that after tax consumption is equalized in period O and period 1. On the diagram show after- tax savings. C; ($ x 1,000) 450 400 350 300 250 200 150 100 50 25 50 75 100 125 150 175 200 225 250 275 300 325 350 Co ($ x 1,000)
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Kevin's reference dependent utility over money is y and effort is E, refer to the: instantaneous utility function: rt: reference point for wealth, which demonstrated his recent wealth Kevin does not have from money but from gains and losses of money instead. There is no discounting, and assume that Kevin's current wealth from his job is 0. Kevin is thinking about a new role at work which allows him to increase his income by $1000 per period for two periods, counting from the current period, which is t = 0. He must undergo a training which require an effort of EO = 3500 at that value of alpha, how much ultility would Kevin lose relative to his non-projection-biased preferences if she took the position 1000 250 500 750
2. An individual has an intertemporal utility function that is rational, monotonic, and strictly convex. She can borrow/lend at the interest rate, r, but does not have access to human capital. She is currently consuming a bundle such that MRSx₁x2 >1+r. How many of the following statements COULD BE true? [HINT: try drawing a picture] 0 X1x2 The bundle is optimal (i.e. maximizes her utility). If the individual is consuming both goods, she could do better by consuming less today and consuming more tomorrow. She is at a corner solution in which she only consumes tomorrow. a. 1 b. 2 c. 3 V. d. None of the above statements could be true.

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