Homework Answers
Y1 = income of period 1 = 200
Y2 = income of period 2 = 250
C1 = consumption of period 1
C2 = consumption of period 2
r = 0.10
Budget constraint
C1 + C2/(1+r) = Y1 + Y2/(1+r)
C1 + C2/(1 +0.10) = 200 + 250/(1+ 0.10)
C1 + C2/1.1 = 200 + 250/1.1
Since C2 is graphed on vertical axis therefore for vertical intercept put C1 = 0
Therefore C1 + C2/1.1 = 200 +250/1.1
C1 = 0
0 + C2/1.1 = 200 + 250/1.1
C2/1.1 = 200 + 250/1.1
C2 = 1.1(200 +250/1.1)
= 220 + 250
= 470
Thus 4th option is correct.
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