Suppose that you earn $320 in year 1 and will ean $720 in year 2. If you borrow money against your future income you will have and additional $576 tospend in year 1, and if you lend all of your current income you will have and additional $400 to spend in year 2. In both years you consume only food whichcosts $1 per kilogram in each year.What is the interest rate that you borrow and lend at?R=Let your MRS for food in year 1 with food in year 2 be given by the formulawhere F is the amount of food consumed this year and F is the amountof food consumed next year.Calculate your consumption bundle:F =F =Suppose the interest rate at which you can borrow and lend changes to 20%.Calculate your new consumption bundle:F =F2 =Which interest rate is preferred?The initial interest rate found in part 1O The new interest rate, 20%

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Suppose that you earn $320 in year 1 and will eam $720 in year 2. If you borrow money against your future income you will have and additional $576 to spend in year 1, and if you lend all of your current income you will have and additional $400 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= F Let your MRS for food in year 1 with food in year 2 be given by the formula where F is the amount of food consumed this year and F is the amount of tood consumed next year. Calculate your consumption bundle: F = F2 Suppose the interest rate at which you can borrow and lend changes to 20%. Calculate your new consumption bundle:

Suppose that you earn $320 in year 1 and will eam $720 in year 2. If you borrow money against your future income you will have and additional $576 to spend in year 1, and if you lend all of your current income you will have and additional $400 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= F Let your MRS for food in year 1 with food in year 2 be given by the formula where F is the amount of food consumed this year and F is the amount of tood consumed next year. Calculate your consumption bundle: F = F2 Suppose the interest rate at which you can borrow and lend changes to 20%. Calculate your new consumption bundle:

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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