C1 C1 = yo (1+r) slope = - (1+r) 1 и'(со) slope = pu'(c1) B* = (cj,c¡) U*= u(cô) + pu(ci) yo CO Figure 2.2 Lifetime utility maximization Individuals maximize their lifetime utility U* given their expected lifetime income Yo. The diagram illustrates this intertemporal optimization as a two-period problem over today and tomorrow. A) If the interest rate falls and the substitution effect dominates the income effect they will consume less today B) If they discount the future less for a given interest rate, they will consume more today. C) If their lifetime income rises they will surely consume less both today and tomorrow. D) If they discount the future less for a given interest rate, they will consume less today. E) If the interest rate rises and the substitution effect dominates the income effect they will consume more today.

C1 C1 = yo (1+r) slope = - (1+r) 1 и'(со) slope = pu'(c1) B* = (cj,c¡) U= u(cô) + pu(ci) yo CO Figure 2.2 Lifetime utility maximization Individuals maximize their lifetime utility U given their expected lifetime income Yo. The diagram illustrates this intertemporal optimization as a two-period problem over today and tomorrow. A) If the interest rate falls and the substitution effect dominates the income effect they will consume less today B) If they discount the future less for a given interest rate, they will consume more today. C) If their lifetime income rises they will surely consume less both today and tomorrow. D) If they discount the future less for a given interest rate, they will consume less today. E) If the interest rate rises and the substitution effect dominates the income effect they will consume more today.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

ChapterB: Differential Calculus Techniques In Management

Section: Chapter Questions

Problem 8E

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