C1 C1 = yo (1+r) slope = - (1+r) 1 и'(со) slope = pu'(c1) B* = (cj,c¡) U*= u(cô) + pu(ci) yo CO Figure 2.2 Lifetime utility maximization Individuals maximize their lifetime utility U* given their expected lifetime income Yo. The diagram illustrates this intertemporal optimization as a two-period problem over today and tomorrow. A) If the interest rate falls and the substitution effect dominates the income effect they will consume less today B) If they discount the future less for a given interest rate, they will consume more today. C) If their lifetime income rises they will surely consume less both today and tomorrow. D) If they discount the future less for a given interest rate, they will consume less today. E) If the interest rate rises and the substitution effect dominates the income effect they will consume more today.

C1 C1 = yo (1+r) slope = - (1+r) 1 и'(со) slope = pu'(c1) B* = (cj,c¡) U= u(cô) + pu(ci) yo CO Figure 2.2 Lifetime utility maximization Individuals maximize their lifetime utility U given their expected lifetime income Yo. The diagram illustrates this intertemporal optimization as a two-period problem over today and tomorrow. A) If the interest rate falls and the substitution effect dominates the income effect they will consume less today B) If they discount the future less for a given interest rate, they will consume more today. C) If their lifetime income rises they will surely consume less both today and tomorrow. D) If they discount the future less for a given interest rate, they will consume less today. E) If the interest rate rises and the substitution effect dominates the income effect they will consume more today.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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