Question

- (15) Smith receives $100 of income this period and $165 next
period. His utility function is given by
*U=**X**α**Y**1-α*, where X is consumption this period and*Y*is consumption next period. When the interest rate was 10%, his consumption was (*C**1*****,**C**2****)=(100, 165).- 7) Find the value of
*α*. - (8) If the interest rises to 50%, what would be the optimal consumption bundle?

- 7) Find the value of

Answer #1

(15) Smith receives $100 of income this period and $165 next
period. His utility function is given by U=X^α Y^(1-α), where X is
consumption this period and Y is consumption next period. When the
interest rate was 10%, his consumption was
(C_1^*,C_2^*)=(100,165).
(7) Find the value of α.
(8) If the interest rises to 50%, what would be the optimal
consumption bundle?

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