Interest Rate
Consumers typically pay a higher real interest rate to borrow than they receive when they lend (by making bank deposits, for example). Draw a consumer’s budget line under the assumption that the real interest rate earned on funds lent, rl, is lower than the real interest rate paid to borrow, rb.
Show how the budget line is affected by an increase in rl, an increase in rb, or an increase in the consumer’s initial wealth.
Show that changes in rl and rb may leave current and future consumption unchanged. (Hint: Draw the consumer’s indifference curves so that the consumer initially chooses the no-borrowing, no-lending point.)
Homework Answers
Request Answer!
We need at least 10 more requests to produce the answer.
0 / 10 have requested this problem solution
The more requests, the faster the answer.
A consumer receives income y in the current period, income yœ in the future period, and...
A consumer receives income y in the current period, income yœ in the future period, and pays taxes of t and t œ in the current and future periods, respectively. The consumer can borrow and lend at the real interest rate r. This consumer faces a constraint on how much he or she can borrow, much like the credit limit typically placed on a credit card account. That is, the consumer cannot borrow more than x, where x < we...
A consumer receives income y in the current period, income yœ in the future period, and pays taxes of t and t œ in the c...
A consumer receives income y in the current period, income yœ in the future period, and pays taxes of t and t œ in the current and future periods, respectively. The consumer can borrow and lend at the real interest rate r. This consumer faces a constraint on how much he or she can borrow, much like the credit limit typically placed on a credit card account. That is, the consumer cannot borrow more than x, where x < we...
A consumer receives income y in the current period, income yœ in the future period, and...
A consumer receives income y in the current period, income yœ in the future period, and pays taxes of t and t œ in the current and future periods, respectively. The consumer can borrow and lend at the real interest rate r. This consumer faces a constraint on how much he or she can borrow, much like the credit limit typically placed on a credit card account. That is, the consumer cannot borrow more than x, where x < we...
If the Fed increases the discount rate, then Key Bank will increase its reserves. decrease its...
If the Fed increases the discount rate, then Key Bank will increase its reserves. decrease its reserves. make more loans. A contractionary or tight monetary policy stimulates borrowing. reduces borrowing. lowers interest rates. Which of the following is an inaccurate statement about the banking system? Banks borrow from households in order to lend to investors. Banks are the critical link in the flow of capital from households to investors. Competition between private banks and the central bank is what limits...
Jason will earn $300,000 in 2018 and $600,000 in 2019. The real interest rate is 7%...
Jason will earn $300,000 in 2018 and $600,000 in 2019. The real interest rate is 7% between 2018 and 2019, and he can borrow and lend at this rate. He has no wealth at the start of 2018 and plans to finish 2019 having consumed everything she possibly can. In 2019, he would like to consume twice as much as in 2018. The inflation rate is 0%. Therefore, in 2018 Jason should: A) save $150,000 B) borrow $150,000 C) neither...
2. The household's rate of time preference is given by a) the slope of the budget...
2. The household's rate of time preference is given by a) the slope of the budget constraint. b) the slope of the indifference curves. c) the real rate of interest. d) the slope of the 45° line.
B) 5 pend an anual interest payment of $25, the interest rate is B) 5 percent....
B) 5 pend an anual interest payment of $25, the interest rate is B) 5 percent. 31) 31) If D) 10 percent A) 2.5 percent a price of $500 and an annual interest C)7.5 percent. 32) 32) If the interest rates on all bonds rise from 5 would you prefer to have been holding? B) a bond with ten years to maturity with one year to maturity percent over the course of the year, which bonc A) a bond with...
Please answer the following question. Please show all your work/explanation. This question asks you to recall...
Please answer the following question. Please show all your work/explanation. This question asks you to recall what you know about how we study the choices of individual consumers. We will focus on an American tourist consumer in Tehran who must decide how many Persian Rugs (R) and how many ounces of Saffron (S) to purchase. Assume our consumer has complete, transitive preferences over Rugs and Saffron and prefers more to less. Explain in words the meaning of these assumptions. Draw...
Gerald is a CEO in Brainies Consulting, Inc. His income in the first year is m1...
Gerald is a CEO in Brainies Consulting, Inc. His income in the first year is m1 = $200 and in the second m2 = $200. Assume that the interest rate is r = 100%. His time horizon is limited to these two years. (a) Find PV and FV of Gerald’s income (b) Show on the graph (C1; C2) Gerald’s budget set. Mark PV, FV, and the slope of his budget line. (c) Explain what borrowing/lending strategy gives Gerald each of...
5 In the intertemporal model, the real interest rate increases, the following statement is wrong ()...
5 In the intertemporal model, the real interest rate increases, the following statement is wrong () A budget constraint line is steeper B Consumer endowment points change C. The present value of the consumer ’s lifetime wealth decreases D consumers will increase current consumption 6 In the intertemporal model, the effect of increasing real interest rates on lenders is () A Current consumption increases, future consumption increases B. Current consumption decreases, future consumption increases C Current consumption is uncertain, and...
If the Fed increases the discount rate, then Key Bank will increase its reserves. decrease its reserves. make more loans. A contractionary or tight monetary policy stimulates borrowing. reduces borrowing. lowers interest rates. Which of the following is an inaccurate statement about the banking system? Banks borrow from households in order to lend to investors. Banks are the critical link in the flow of capital from households to investors. Competition between private banks and the central bank is what limits...
2. The household's rate of time preference is given by a) the slope of the budget constraint. b) the slope of the indifference curves. c) the real rate of interest. d) the slope of the 45° line.
B) 5 pend an anual interest payment of $25, the interest rate is B) 5 percent. 31) 31) If D) 10 percent A) 2.5 percent a price of $500 and an annual interest C)7.5 percent. 32) 32) If the interest rates on all bonds rise from 5 would you prefer to have been holding? B) a bond with ten years to maturity with one year to maturity percent over the course of the year, which bonc A) a bond with...
Most questions answered within 3 hours.
-
Please solve with excel and mention the excel function.
Thanks
Kevin deposits $10,000 in a savings...
asked 18 seconds from now -
Which Special Journal would the following transaction be
journalized in?
Sold merchandise on account to Customer...
asked 11 minutes ago -
Assuming 100% dissociation, calculate the freezing point (?fTf)
and boiling point (?bTb) of 1.45 ? K3PO4(aq)1.45...
asked 14 minutes ago -
An inflated helium balloon with a volume of 0.35L at
sea level (1.0 atm) was allowed...
asked 16 minutes ago -
Python 3.0 Please
Write a function that takes, as arguments, a binary string, a
list of...
asked 44 minutes ago -
(a) Calculate the momentum of a 2150 kg elephant charging a
hunter at a speed of...
asked 31 minutes ago -
all the following is an example of a fixed cost except: any cost
that changes in...
asked 33 minutes ago -
Briefly describe the changes in pupil diameter that occur with
changes in light intensity or distance...
asked 33 minutes ago -
A small sample from a vial of phenol melts at 39-40 °C. A larger
sample from...
asked 35 minutes ago -
Draw a δ-lysine amino acid and label all the carbons (alpha,
beta, gamma, etc.)
asked 48 minutes ago -
A uniform thin rod of length 0.97 m and mass 2.2 kg lies in a
horizontal...
asked 41 minutes ago -
A 110 kg horizontal beam is supported at each end. A 340 kg
piano rests at...
asked 42 minutes ago