Suppose that you eam $250 in year 1 and will eam $448 in year 2. If you borrow mòney against your future income you will have and additional $400 to spend in year 1, and if you lend all of your current income you will have and additional $280 to spend in year 2. In both years you consume only food which costs $1 per kilogram in each year. What is the interest rate that you borrow and lend at? R= %3D F2 Let your MRS for food in year 1 with tood in year 2 be given by the formula where F is the amount of food consumed this F1 year and F2 is the amount of food consumed next year. Calculate your consumption bundle: F = F2 = Suppose the interest rate at which you can borrow and lend changes to 40%. Calculate your new consumption bundle: F = F2 Which interest rate is preferred? The initial interest rate found in part 1 O The new interest rate, 40%
Suppose that you eam $250 in year 1 and will eam $448 in year 2. If you borrow mòney against your future income you will have and additional $400 to spend in year 1, and if you lend all of your current income you will have and additional $280 to spend in year 2. In both years you consume only food which costs $1 per kilogram in each year. What is the interest rate that you borrow and lend at? R= %3D F2 Let your MRS for food in year 1 with tood in year 2 be given by the formula where F is the amount of food consumed this F1 year and F2 is the amount of food consumed next year. Calculate your consumption bundle: F = F2 = Suppose the interest rate at which you can borrow and lend changes to 40%. Calculate your new consumption bundle: F = F2 Which interest rate is preferred? The initial interest rate found in part 1 O The new interest rate, 40%
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![Suppose that you eam $250 in year 1 and will ean $448 in year 2. If you borrow money against your future income you will have
and additional $400 to spend in year 1, and If you lend all of your current income you will have and additional $280 to spend in
year 2. In both years you consume only food which costs $1 per kilogram in each year.
What is the interest rate that you borrow and lend at?
R=
F2
where F is the amount of food consumed this
F1
Let your MRS for food in year 1 with food in year 2 be given by the formula
year and Fo is the amount of food consumed next year.
Calculate your consumption bundie:
F1 =
F2 =
%3!
Suppose the interest rate at which you can borrow and lend changes to 40%.
Calculate your new consumption bundle:
%3D
Which interest rate is preferred?
O The initial interest rate found in part 1
The new interest rate, 40%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa37112d9-cdc2-4e34-9560-77b0caef31d8%2Fe91f5f3d-dce3-45d4-806b-cb492f408d01%2Fxrglay_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Suppose that you eam $250 in year 1 and will ean $448 in year 2. If you borrow money against your future income you will have
and additional $400 to spend in year 1, and If you lend all of your current income you will have and additional $280 to spend in
year 2. In both years you consume only food which costs $1 per kilogram in each year.
What is the interest rate that you borrow and lend at?
R=
F2
where F is the amount of food consumed this
F1
Let your MRS for food in year 1 with food in year 2 be given by the formula
year and Fo is the amount of food consumed next year.
Calculate your consumption bundie:
F1 =
F2 =
%3!
Suppose the interest rate at which you can borrow and lend changes to 40%.
Calculate your new consumption bundle:
%3D
Which interest rate is preferred?
O The initial interest rate found in part 1
The new interest rate, 40%
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