Let’s analyze the rational behavior and well-being of 3 different individuals in regards to their saving and borrowing behavior. I recommend drawing the intertemporal consumption model graph for each of the following situations. We will be analyzing three individuals; Charlie is saving at the current interest rate, Allison is borrowing at the current interest rate, and Chris is neither saving nor borrowing at the current interest rate. (a) Charlie is currently saving money (spending less than his current income) at the current interest rate. Will he be made better off if the interest rate subsequently increases? (b) Allison is currently borrowing money (spending more than her current income) at the current interest rate. Will she be made better off if the interest rate subsequently increases? (c) Chris is currently neither saving nor borrowing (spending exactly his current income) at the current interest rate. Will he be made better off if the interest rate subsequently increases?
Let’s analyze the rational behavior and well-being of 3 different individuals in regards to their saving and borrowing behavior. I recommend drawing the intertemporal consumption model graph for each of the following situations. We will be analyzing three individuals; Charlie is saving at the current interest rate, Allison is borrowing at the current interest rate, and Chris is neither saving nor borrowing at the current interest rate.
(a) Charlie is currently saving money (spending less than his current income) at the current interest rate. Will he be made better off if the interest rate subsequently increases?
(b) Allison is currently borrowing money (spending more than her current income) at the current interest rate. Will she be made better off if the interest rate subsequently increases?
(c) Chris is currently neither saving nor borrowing (spending exactly his current income) at the current interest rate. Will he be made better off if the interest rate subsequently increases?
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