Sanna lives for two time periods. She receives income in both and can consume in both. Her utility function is increasing in both period 1 and period 2 consumption. Any income saved from Period 1 must be consumed in Period 2 and earns interest (at interest rate r); in contrast, if Sanna borrows in Period 1 she must pay this back (at interest rate r) from her income in Period 2. Suppose that initially Sanna's optimal bundle makes her a lender in Period 1. If the interest rate increases, which of the following is true? O None of the other answers are correct Sanna might become a borrower and will be made better off Sanna might become a borrower and might be made better off OSanna will remain a lender and will be made better off Sanna will remain a lender but might be made worse off

Sanna lives for two time periods. She receives income in both and can consume in both. Her utility function is increasing in both period 1 and period 2 consumption. Any income saved from Period 1 must be consumed in Period 2 and earns interest (at interest rate r); in contrast, if Sanna borrows in Period 1 she must pay this back (at interest rate r) from her income in Period 2. Suppose that initially Sanna's optimal bundle makes her a lender in Period 1. If the interest rate increases, which of the following is true? O None of the other answers are correct Sanna might become a borrower and will be made better off Sanna might become a borrower and might be made better off OSanna will remain a lender and will be made better off Sanna will remain a lender but might be made worse off

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.1P

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