Ophelia has income of M₁ = 100 in period 1 and M₂ = 20 in period 2. If she chooses to, she = 0.05 (so an interest rate of 5% per period). The an either save or borrow at an interest rate of i = ate of price inflation between periods is π = 0 (so a 0% inflation rate) and price of a unit of onsumption in each period is normalized to 1 (so p₁ = P2 = 1). uppose that Ophelia's utility function over intertemporal consumption bundles is √(C₁, C₂) = ln c₁ + ln c₂. (Notice that this utility function implies that: (i) Ophelia has iminishing marginal utility of consumption in each period and (ii) Ophelia does not discount the uture at all relative to the present.) Which of the following statements accurately describes the omposition of Ophelia's optimal intertemporal consumption bundle? O Ophelia consumes in both periods, but consumes slightly more in period 1 than in period 2. O Ophelia consumes in both periods, but consumes slightly more in period 2 than in period 1. O Ophelia shifts all of her consumption to period 2, and therefore consumes nothing in period 1. O Ophelia shifts all of her consumption to period 1, and therefore consumes nothing in period 2.
Ophelia has income of M₁ = 100 in period 1 and M₂ = 20 in period 2. If she chooses to, she = 0.05 (so an interest rate of 5% per period). The an either save or borrow at an interest rate of i = ate of price inflation between periods is π = 0 (so a 0% inflation rate) and price of a unit of onsumption in each period is normalized to 1 (so p₁ = P2 = 1). uppose that Ophelia's utility function over intertemporal consumption bundles is √(C₁, C₂) = ln c₁ + ln c₂. (Notice that this utility function implies that: (i) Ophelia has iminishing marginal utility of consumption in each period and (ii) Ophelia does not discount the uture at all relative to the present.) Which of the following statements accurately describes the omposition of Ophelia's optimal intertemporal consumption bundle? O Ophelia consumes in both periods, but consumes slightly more in period 1 than in period 2. O Ophelia consumes in both periods, but consumes slightly more in period 2 than in period 1. O Ophelia shifts all of her consumption to period 2, and therefore consumes nothing in period 1. O Ophelia shifts all of her consumption to period 1, and therefore consumes nothing in period 2.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![Ophelia has income of M₁
100 in period 1 and M₂
20 in period 2. If she chooses to, she
=
can either save or borrow at an interest rate of i 0.05 (so an interest rate of 5% per period). The
rate of price inflation between periods is π = 0 (so a 0% inflation rate) and price of a unit of
consumption in each period is normalized to 1 (so P₁ = P2 = 1).
=
O
-
Suppose that Ophelia's utility function over intertemporal consumption bundles is
U (C₁, C₂) = ln c₁ + ln c₂. (Notice that this utility function implies that: (i) Ophelia has
diminishing marginal utility of consumption in each period and (ii) Ophelia does not discount the
future at all relative to the present.) Which of the following statements accurately describes the
composition of Ophelia's optimal intertemporal consumption bundle?
Ophelia consumes in both periods, but consumes slightly more in period 1 than in period 2.
Ophelia consumes in both periods, but consumes slightly more in period 2 than in period 1.
Ophelia shifts all of her consumption to period 2, and therefore consumes nothing in period 1.
Ophelia shifts all of her consumption to period 1, and therefore consumes nothing in period 2.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7000f9fb-f0e1-44a6-bc3b-c624003d724e%2F958df688-83f1-405a-8d84-eb05a8770b37%2Fti4clb_processed.png&w=3840&q=75)
Transcribed Image Text:Ophelia has income of M₁
100 in period 1 and M₂
20 in period 2. If she chooses to, she
=
can either save or borrow at an interest rate of i 0.05 (so an interest rate of 5% per period). The
rate of price inflation between periods is π = 0 (so a 0% inflation rate) and price of a unit of
consumption in each period is normalized to 1 (so P₁ = P2 = 1).
=
O
-
Suppose that Ophelia's utility function over intertemporal consumption bundles is
U (C₁, C₂) = ln c₁ + ln c₂. (Notice that this utility function implies that: (i) Ophelia has
diminishing marginal utility of consumption in each period and (ii) Ophelia does not discount the
future at all relative to the present.) Which of the following statements accurately describes the
composition of Ophelia's optimal intertemporal consumption bundle?
Ophelia consumes in both periods, but consumes slightly more in period 1 than in period 2.
Ophelia consumes in both periods, but consumes slightly more in period 2 than in period 1.
Ophelia shifts all of her consumption to period 2, and therefore consumes nothing in period 1.
Ophelia shifts all of her consumption to period 1, and therefore consumes nothing in period 2.
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