Oliver gets an allowance of $100 this week and $112 next week. Let c₁ and c₂ be his consumption (measured in units of stuff) this and next week, correspondingly. The price of one unit of stuff this week is $10. Next week, the price will be $14 because of inflation. Assume that the interest rate i (both for borrowing and lending) is 0.05. Write down the intertemporal budget constraint. Note, the prices shown already has inflation built into them. You do not have to reduce the budget constraint further.
Oliver gets an allowance of $100 this week and $112 next week. Let c₁ and c₂ be his consumption (measured in units of stuff) this and next week, correspondingly. The price of one unit of stuff this week is $10. Next week, the price will be $14 because of inflation. Assume that the interest rate i (both for borrowing and lending) is 0.05. Write down the intertemporal budget constraint. Note, the prices shown already has inflation built into them. You do not have to reduce the budget constraint further.
Chapter10: Consumer Choice Theory
Section: Chapter Questions
Problem 10P
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