Question

An individual with 100, 000 dollars and must decide how much to consume now (period t)...

An individual with 100, 000 dollars and must decide how much to consume now (period t) and how much to save for the future (period t + 1) to maximize the sum of utilities over the two periods: U(Ct) + U (Ct+1). Ct is the consumption amount at date-t and Ct+1 is the consumption at date-t + 1. The bank will pay interest rate r for every dollar she saves.

8. Can you give an example of utility function U(C) such that when the individual has such utility function, the optimal consumption Ct does not change with the interest rate r?

9. Can you give an example of utility function U(C) such that when the individual has such utility function, the optimal consumption Ct changes with the interest rate r?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
An individual with 100, 000 dollars and must decide how much to consume now (period t)...
An individual with 100, 000 dollars and must decide how much to consume now (period t) and how much to save for the future (period t + 1) to maximize the sum of utilities over the two periods: U(Ct) + U (Ct+1). Ct is the consumption amount at date-t and Ct+1 is the consumption at date-t + 1. The bank will pay interest rate r for every dollar she saves. Can you give an example of utility function U(C) such...
Consider the following consumption decision problem. A consumer lives for two periods and receives income of...
Consider the following consumption decision problem. A consumer lives for two periods and receives income of y in each period. She chooses to consume c1 units of a good in period 1 and c2 units of the good in period 2. The price of the good is one. The consumer can borrow or invest at rate r. The consumer’s utility function is: U = ln(c1) + δ ln(c2), where δ > 0. a. Derive the optimal consumption in each period?...
Imagine an individual who lives for two periods. The individual has a given pattern of endowment...
Imagine an individual who lives for two periods. The individual has a given pattern of endowment income (y1 and y2) and faces the positive real interest rate, r. Lifetime utility is given by U(c1, c2)= ln(c1)+β ln(c2) Suppose that the individual faces a proportional consumption tax at the rate Ԏc in each period. (If the individual consumes X in period i then he must pay XԎc to the government in taxes period). Derive the individual's budget constraint and the F.O.C...
A consumer’s consumption-utility function for a two-period horizon (t = 1, 2) is given by U(c1,c2)...
A consumer’s consumption-utility function for a two-period horizon (t = 1, 2) is given by U(c1,c2) = ln(c1)+ln(c2). The consumer’s income stream is y1 = $1500 and y2 = $1080, and the market rate of interest is 8%. Calculate the optimal values for c1 and c2 that maximize the consumer’s utility
Consider an individual who lives two periods. He works in both periods and receives a labor...
Consider an individual who lives two periods. He works in both periods and receives a labor income of 200 euros in the first period and 220 euros in the second. The interest rate of the economy is 10%. The consumption in period 1 is c1, and in period 2 it is c2. The price of the consumption good is 1 in both periods. The utility function of this individual is U(c1,c2 )=c11/2c21/2. Suppose there is a proportional tax on labor...
(15) Smith receives $100 of income this period and $165 next period. His utility function is...
(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?
Consider an individual who lives two periods. He works in both periods and receives a labor...
Consider an individual who lives two periods. He works in both periods and receives a labor income of 200 euros in the first period and 220 euros in the second. The interest rate of the economy is 10%. The consumption in period 1 is c1, and in period 2 it is c2. The price of the consumption good is 1 in both periods. The utility function of this individual is U(c1,c2 )=c11/2c21/2. Suppose there is a proportional tax on labor...
(15) Smith receives $100 of income this period and $165 next period. His utility function is...
(15) Smith receives $100 of income this period and $165 next period. His utility function is given by U=Xα Y1-α, where X is consumption this period and Y is consumption next period. When the interest rate was 10%, his consumption was (C1*, C2*)=(100, 165). 7) Find the value of α. (8) If the interest rises to 50%, what would be the optimal consumption bundle?
If Lupita’s income at t=1(current period) is $150,000 and her income att=2(future period) will be $110,000....
If Lupita’s income at t=1(current period) is $150,000 and her income att=2(future period) will be $110,000. a.Show algebraically and using a graph,what is Lupita’s possible maximum present consumption (at t=1), a.k.a.the Present Value of lifetime income, and possible maximum future consumption (at t=2), a.k.a. the Future Value of lifetime income,if the market interest rate between period t=1 and period t=2is 10%. b.If Lupita chooses to save $50,000 at period t=1 (c1: present consumption), how much can she consume at period...
Beta lives for two periods. In period 1, Beta works and earns a total income of...
Beta lives for two periods. In period 1, Beta works and earns a total income of $2, 000. If she consumes $c1 in period 1, then she deposits her savings of 2, 000 − c1 dollars in a bank account that gives her an interest rate of 10% per period. (Notice that Beta is not able to borrow in period 1, so c1 ≤ 2, 000.) In period 2, Beta leads a retired life and receives $110 in social-security income....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT