Question

c. if his money income is held constant when the pre Un changes. d. if the prices of all other goods are held constant. e. None of the above. 23. Suppose that Molly from Problem 2 had an income of $200 in period 1 and an income of $460 in y period 2. Suppose that her utility function were cc-2, where a = 0.40 and the interest rate were 15%. If her income in period 1 doubled and her income in period 2 stayed the same, her consumption s in period 1 would a. increase by $80. b. increase by $40. c. double. d. stay constant. e. increase by $200. 24. Mr. O. B. Kandle, of Problem 8, has a utility function C C2, where c, is his consumption in period 1 and co is his consumption in period 2. He has no income in period 2. If he had an income of $70,000 in period 1 and the interest rate increased from 10 to 16%, a. his savings would increase by 6% and his consumption in period 2 would also increase. b. his consumption in both periods would decrease. c. his savings would not change but his consumption in period 2 would increase by 2,100. d. his consumption in both periods would increase. e his consumption in period 1 would decrease by 16% and his consumption in period 2 would also decrease. 4/6 cars.edu/bbcswebdav/pid-2234584-dt-content-rid-22528556_1/courses/202012122030101/202012122030101_ImportedContent... DiaCKDUaru.uyu

I need the steps to solve questions 23&24 thank you

Answer 1

Ans-23 Y= 200 12 = 460 with d=0.4 U (c., (2) = cd cold 0.4 0.6 - с. С. 8=150% = 0.15 First Cencculate optimal choice. -0.6 0.6 MRS= dulde; - 0.4 C, ca Julder 0.660 C4 0.6 0.4 = o.u C2 C2 O. 6 Co. co.b 4c2 60 MRS = 2 C2 30, where MRE = (ltr) = (It.15) = (1.15) egn Conclition MRS=MRE 2 C2 = 1.15 301

262 1015 C2 - 3 (1.15) , Budget constraint in future Terms, Ca + ci(1+2) = Y2 + VICH) 3 (1.158c1 + 1.150 = 460 + 200 (1+0.15) 3(1.15d1+ 2.301 - 460+ 230 N 2 3.450+ 2.301 = 690 5.75c, = 1380 a = 1380 5075 = 240

Now from y'= 400 Budget constraint 3 (1.15) ci+ 1.15c, = 460 + 400 (1.15) 3.450+ 2.30 = 400 + 460 5.750 = 920 2 =) 5-1501 - 1840 IG= V - 320 1840 5.75 C = 240 ('=320 AC = circi - 320 - 240 = 80 - Consumption increase by 80.

Ans-24 U=G.C2 Y2=0 YI= 2 70,000 if interest rate increase from 8=10% To 8=16% wowe increase in interest date equilibrium concuition. MRS = C2 MRE= (1+r)= (1.1) equilibrium condition MRS = MRE 2 = 101 - C2 - 1016, - " Budget Constraint Cat Cacha) = 12 + VICH) pleit 1.1G - YI (1.1) 2. 20 = 70,000 (101) =) = 70,000 (101) 202 a = 35000 savings = Y, C = 70,000 - 35000 - 35000

C2 = G. (lol) = 35000 (101) C₂ = 38500 Now increase in interest rate from 10 to 16 % from (i, we have C₂ = nocy 1.16 C from Budget constod int Cetc. (1+8)= Y₂ + YI (148) 1016 C + 1016 c = 0 + 70,000 (1016) 2.32c1 = 70,000 (1.16) - cc = 70,000 (1016) 2.32 ci = 35000 - C₂ = C. (1016) C2 = 40600 S = Yi-G = 35000

AC = Cil-ci = 35000 - 35000 = 0 AC2 = C, 1 - C2l = 40600 - 38500 = 2100 AS = S'-s = 35000 - 3500 = 0. but (c) has savings would not change his consumption Periocl- 2 incre ase by 2100
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