Question

Suppose you earn $10,000 this summer and expect to earn $20,000 next summer. The interest rate is 10%. (You don't have to submit a graph) a) Write down the slope of the budget constraint, horizontal intercept, vertical intercept and the X-Y coordinates for the endowment. b) Write your intertemporal budget constraint in the equation. c) With the same incomes, now suppose the bank pays you an interest rate of 10% on anything you save but will lend you money only at an interest rate of 20%. Write down the slope of the budget constraint, horizontal intercept, vertical intercept and the X-Y coordinates for the endowment.

Answer 1

d. 1 eur year let I, be earning this summer fo, // =$10,000 let to be earning next summer. So, I 2 = $20,000 - a consumption this year, Coi consumption next r= 109. 2011 a) The intertempored budget constraint is: C + 2 y = Y , + 7 har 10+ 0 tony = |oo0o + 34 140)] minden tant 19. + = 10000+ 20 vu]... O globe = (1+r) = 1.1 honzontal tr G + هست 1 Cz lovoot 20000 . 11oooot 2o00oo 11 11 big titet [9 31000 x 216.14 vertical intercept : 650 G= 1.1 (locou + 30000) . C2 = 11000 + 20000 verticel intercept [a = 3100 o] endo wment ir : (4,72) = (0o0o, 20000)

b) The Intertemporal budget equation : + 20000 (6 <1000o) e) Close me? 10% of C, <y, . budget constraint 9th and a lovost dovo p (for Gey) Slabe = 1177 )=\! for [4, 210000] Vertical interceft ; 4-0.. Cu = ln (lovoo + 200.00 vertich interecht [CR7 310007 Case 27 8= 20%.50.2 of Gay, ie [(> 100oo] budget constraint is: Gt4 = uit 7 r. = 1 o].: 6 • constant H - 000 + 2000 - 1.2 elope = (1+r)-1-2 horizontal intercepta : Cato G = 10000 + 20000 Ci= 1.2 120000 + 200000 12 (horizontal interceb7 G = 320000226616.67 endowment : (9,7/2) - (10000, 2000)