Suppose a consumer has $1500 in the current time period and $1100 in the future time period. Suppose also that the consumer can borrow and lend freely and, unless otherwise specified, borrowing and lending interest rates are the same. (a) If the interest rate between time periods is 50%, what is the budget constraint between consumption in the present and consumption in the future? (B) If the interest rate at which the consumer can borrow is 75% but the rate at which she can lend is 25%, what is the budget constraint? (C) Suppose the interest rate is 50%. If the consumer has to pay a fee of 10% of the loan amount in order to borrow money, what is the budget constraint?

Suppose a consumer has $1500 in the current time period and $1100 in the future time period. Suppose also that the consumer can borrow and lend freely and, unless otherwise specified, borrowing and lending interest rates are the same. (a) If the interest rate between time periods is 50%, what is the budget constraint between consumption in the present and consumption in the future? (B) If the interest rate at which the consumer can borrow is 75% but the rate at which she can lend is 25%, what is the budget constraint? (C) Suppose the interest rate is 50%. If the consumer has to pay a fee of 10% of the loan amount in order to borrow money, what is the budget constraint?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.3P

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