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In: Economics

An individual with 100, 000 dollars and must decide how much to consume now (period t)...

An individual with 100, 000 dollars and must decide how much to consume now (period t) and how much to save for the future (period t + 1) to maximize the sum of utilities over the two periods: U(Ct) + U (Ct+1). Ct is the consumption amount at date-t and Ct+1 is the consumption at date-t + 1. The bank will pay interest rate r for every dollar she saves.

Can you give an example of utility function U(C) such that when the individual has such utility function, the optimal consumption Ct does not change with the interest rate r?

Can you give an example of utility function U(C) such that when the individual has such utility function, the optimal consumption Ct changes with the interest rate r?

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Expert Solution

Rahul Sunny answered 2 years ago
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