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Becky has income of $1000 today and $500 tomorrow. Becky can lend and borrow at an interest rate of 10%. There is 5% ináation. Her preferences for intertemporal consumption are represented by the following utility function u(c1; c2) = minfc1; 2c2g

(a) What is her optimal consumption bundle?

(b) If interest rates increase to 20%, write down her new intertemporal budget constraint and graphically demonstrate the change to her intertemporal budget constraint and label any changes to the intercepts.

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M92002631

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