Question

Suppose you receive an endowment of 100 dollars in the first period, and 50 dollars in...

Suppose you receive an endowment of 100 dollars in the first period, and 50 dollars in the second period. The interest rate is 10 percent.

(a) Write down the life time budget constraint.

(b) Graph her life time budget constraint (consumption in period 1 on the x-axis and consumption in period 2 on the y-axis).

(c) Write down the life time budget constraint if she receives 50 dollars in the first period and 100 dollars in the second period.

(d) Graph her new life time budget constraint (consumption in period 1 on the x-axis and consumption in period 2 on the y-axis).

(e) Graph her new life time budget constraint again if the interest rate is 20 percent.

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