A typical worker will earn £300k in their youth and £600k in middle-age. Over their lifetime, they must choose between two “goods”: consumption in their youth and consumption in middle-age. When young, the worker has the option of putting their earnings in the bank at an interest rate of 0% - these savings can then be spent in middle-age. Alternatively, they can borrow money from the bank when young. This loan must be paid back in middle-age at a 100% interest rate. (a) What is the maximum amount of money the worker can borrow when young?
A typical worker will earn £300k in their youth and £600k in middle-age. Over their lifetime, they must choose between two “goods”: consumption in their youth and consumption in middle-age. When young, the worker has the option of putting their earnings in the bank at an interest rate of 0% - these savings can then be spent in middle-age. Alternatively, they can borrow money from the bank when young. This loan must be paid back in middle-age at a 100% interest rate. (a) What is the maximum amount of money the worker can borrow when young?
Chapter17: Capital And Time
Section: Chapter Questions
Problem 17.3P
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A typical worker will earn £300k in their youth and £600k in middle-age. Over their lifetime, they must choose between two “goods”: consumption in their youth and consumption in middle-age.
When young, the worker has the option of putting their earnings in the bank at an interest rate of 0% - these savings can then be spent in middle-age. Alternatively, they can borrow money from the bank when young. This loan must be paid back in middle-age at a 100% interest rate.
(a) What is the maximum amount of money the worker can borrow when young?
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