Assume Marjeri lives for only two periods and has the utility function U(C1, C2) = In C1 + 0.9 In C2 She can save or borrow any amount at an interest rate of 8%. Her income in each period is $10,000. How much should she consume in each period in order to maximize her utility? How much will she save or borrow?

Assume Marjeri lives for only two periods and has the utility function U(C1, C2) = In C1 + 0.9 In C2 She can save or borrow any amount at an interest rate of 8%. Her income in each period is $10,000. How much should she consume in each period in order to maximize her utility? How much will she save or borrow?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

If mpc = 0.8 and the additional income is P12,000, how much is the additional consumption? How much is the additional savings? show the computations
Question 3) In a two-period world, a consumer's utility function is given by u(c1, c2) = ln(c1) + In(c2) where c1 and c2 are his consumption in the two periods. Denote his income in the two periods by m1 and m2 and the prevailing interest rate by r. (a) Derive the period-1 consumption function c1(r, m1, m2). (b) How much will this individual save in the first period if m1 = m2 = 220 and r = 25%? (c) Suppose the individual has an income of £220 in each period, and that the current prevailing interest rate is 20%. If there is an increase in the prevailing interest rate, we cannot predict how his behaviour will change because we do not know the relative strengths of the income and the substitution effects. True or false? Provide a graphical explanation that supports your claim.
Suppose as a hypothetical scenario that you deposit $400 today into a savings account with a variable interest rate and will collect a payment in one year. True or False: If over the course of the year the interest rate falls, this increases the future value of your investment. True False
4. Mateo is deciding how many dollars to consume today and how many to consume next week. We earns $1,000 each week and earns a real interest rate of p = 0.01 on any money saved today. He also needs to pay the same interest rate if he borrows money today and repays it next week. If his utility function is U (C₁, C₂) = cc₂, where c₁ is units of consumption today and c₂ is units of consumption next week, how many units will he consume this week?
Consider an overtime rule that requires that workers get paid double for any weekly hours over 40. Draw a picture that shows how a worker decides how much to work. Label everything in your picture and explain what is happening. Consider an investment that costs $100 and pays back $10 each year as long as the person making the investment is alive. Construct an equation for the net present value of the investment. An individual has a utility function, U = AX1 X2 where X1 and X2 are consumption of goods 1 and 2. The individual also faces a budget constraint. Show mathematically how an increase in Aa§ects the individualís decisions about consumption of each good.
Holly's utility function is U(c1, c2) = c/21 + 0.87d/22, where cq is her consumption in period 1 and c2 is her consumption in period 2. In period 2, her income is twice as large as her income in period 1. At what interest rate will she choose to consume the same amount in period 2 as in period 1? (Choose the closest answer.) Group of answer choices 0.30 0.08 0.23 0.15
Consider an economy where individuals live for two periods only. Their utility function over consumption in periods 1 and 2 is given by U = 2 log(C1) + 2 log(C2), where C1 and C2 are period 1 and period 2 consumption levels respectively. They have labor income of $100 in period 1 and labor income of $50 in period 2. They can save as much of their income in period 1 as they like in bank accounts, earning interest rate of 5 percent per period. They have no bequest motive, so they spend all their income before the end of period 2. a. What is each individual’s lifetime budget constraint? If they choose consumption in each period so as to maximize their lifetime utility subject to their lifetime budget constraint, what is the optimal consumption in each period? How much do the consumers save in the first period? b. Suppose that the government introduces a social security system that will take $10 from each individual in period 1, put it in a bank account, and transfer it back to…
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)
Consider a two-period living consumer with a utility function, u(c)=sqrt(c). Suppose the real interest rate, R=10% and the utility discount factor, beta=0.95. If the consumer wants to maximize lifetime utility, what will be the growth rate of her consumption from the current to the future period?
Fred is planning his consumption over two time periods. Fred's preferences for consumption in period and two can be represented by the following utility function: U(c,,c,) = C +(1+p) C" , where pis the subjective discount rate, and c;,c, is consumption in the first and second period. Fred's income in the first period is y, and grows by g % from the first period to the second period. Fred has access to perfect financial markets. The rate of interest is r>0. (a) Derive Fred's demand functions for consumption in the two periods as functions of p,r , y and g. (b) Derive Fred's demand for borrowing/saving as a function of p,r, y and g. (c) Give a condition involving the relationship between r and g for when Fred will borrow and when he will save.
Patience has a utility function 1/2 1/2 U(cl, c2) = c? + 0.80c/? where c is her consumption in period 1 and c is her consumption in period 2. Her income in period 1 is 3 times as large as her income in period 2. At what interest rate will she choose to consume the same amount in period 1 as in period 2? a. 2 b. 0.13 c. 0.25 d. 0 е. О.38 20% 13% 25% 0%