Suppose you have a monthly income of $1000, $850 in monthly expenses, and you can put money in a savings account that yields a monthly interest rate of 4%.Now suppose you have an opportunity to invest your money at a 12% return. Further suppose you are able to borrow at 3%. Assuming you invest all of your money and then borrow against your future payout, show your trade-off between present and future consumption. If you still need to consume $850 in the present, how much will you have to spend in the future?

A trade-off will be defined by an economist as an "opportunity cost" i.e. sacrificing some of X to…

Answered: Suppose you have a monthly income of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose you have a monthly income of $1000, $850 in monthly expenses, and you can put money in a savings account that yields a monthly interest rate of 4%.

Now suppose you have an opportunity to invest your money at a 12% return. Further suppose you are able to borrow at 3%. Assuming you invest all of your money and then borrow against your future payout, show your trade-off between present and future consumption. If you still need to consume $850 in the present, how much will you have to spend in the future?

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