Consumption under borrowing constraint (a) With borrowing constraint, household can borrow until 200 in period 1....
Consumption under borrowing constraint
(a) With borrowing constraint, household can borrow until 200 in period 1. Under y1 =100, y2= 200, r= 0.2,
How much is maximum possible consumption of period 1?
How much is maximum possible saving of period 1? (under maximum
possible of c1)
How much is maximum possible consumption of period 2? (under
maximum possible of c1)
(b) With full borrowing constraint, household cannot borrow any money in period 1 and cannot consume as well. (C1 = 0)
Under y1 = 100, y2= 200, r= 0.2, How much is maximum possible consumption of period 2? Write budget constraint of period 2.
Homework Answers
A) maximum possible Consumption in period 1,
= Y1 + maximum poseposs borrowing
= 100+200 = 300
Then maximum possible saving, = 0
Since with maximum possible C1 & borrowing upto 200, no saving is possible
So maximum C2 = 0
Bcoz all period 2 income is borrowed in period 1
B)
Maximum possible Consumption of period 2
= Y2 + (1+r) Y1
= 200+(1.2)100
= 200+120
= 320
Period 2 BC,
C2 = Y2+(1+r)Y1 = 320
Add Answer to:
Consumption under borrowing constraint
(a) With borrowing constraint, household can borrow until 200 in
period 1....
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