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In the 2-period model of consumption, suppose Y1 = 200 and Y2 = 200. What would the budget constraint look like if the interest rate is 10% (draw the diagram and label the maximum amounts of C1 and C2). Repeat this if the interest rate was 20% (you can put this on the same graph). What would the budget constraint look like if people could borrow at 12% and lend at 8% (put this on a separate graph and label the maximum values of C1 and C2).

Microeconomics, Economics

  • Category:- Microeconomics
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