Ci and Yi are consumption and income at period i (i=1, 2). When the world interest rate is r (100xr%), C2=Answer . A representative agent has the utility function U=C1C2. In an autarky economy, when Y1=100 and Y2=132, the level of the utility is Answer. In an open economy with r=0.1, the level is Answer. When the interest rate rises by 0.1, C2 changes by Answer compared to C2 with r=0.1. C1 changes by Answer compared to C1 with r=0.1. Choose the reason for this change. C1 becomes cheaper. C2 becomes cheaper. Opportunity cost of interest rate becomes smaller.
Ci and Yi are consumption and income at period i (i=1, 2). When the world interest rate is r (100xr%), C2=Answer . A representative agent has the utility function U=C1C2. In an autarky economy, when Y1=100 and Y2=132, the level of the utility is Answer. In an open economy with r=0.1, the level is Answer. When the interest rate rises by 0.1, C2 changes by Answer compared to C2 with r=0.1. C1 changes by Answer compared to C1 with r=0.1. Choose the reason for this change. C1 becomes cheaper. C2 becomes cheaper. Opportunity cost of interest rate becomes smaller.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Ci and Yi are consumption and income at period i (i=1, 2). When the world interest rate is r (100xr%), C2=Answer . A representative agent has the utility function U=C1C2. In an autarky economy, when Y1=100 and Y2=132, the level of the utility is Answer. In an open economy with r=0.1, the level is Answer. When the interest rate rises by 0.1, C2 changes by Answer compared to C2 with r=0.1. C1 changes by Answer compared to C1 with r=0.1. Choose the reason for this change.
C1 becomes cheaper.
C2 becomes cheaper.
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