Question
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?
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
Consider an individual that must decide how much to consume in a two period model. Let...
Consider an individual that must decide how much to consume in a
two period model. Let us suppose that her preferences for present
consumption (c1) and future consumption (c2) can be characterized
by the following utility function: u(c1, c2) = c1^0.5 × c2 Further
assume that her income in both the present period (M1) and the
future period (M2) is equal to 105, the price index in the present
period (p1) is 1, the price index in the future period...
Consider an individual that must decide how much to consume in a twoperiod model. Let us...
Consider an individual that must decide how much to consume in a
twoperiod model. Let us suppose that her preferences for present
consumption (c1) and future consumption (c2) can be characterized
by the following utility function: u(c1, c2) = √ c1 × c2 Further
assume that her income in both the present period (M1) and the
future period (M2) is equal to 105, the price index in the present
period (p1) is 1, the price index in the future period...
Garth inherited $25,000. He needs to decide now much to spend now and how much to save for later.
Garth inherited $25,000. He needs to decide
now much to spend now and how much to save for later. If he saves
the money, then he can earn 15% interest on the total before he
spends it. Using the information about his marginal utility in the
table below, Garth should:PresentConsumptionMarginal Utility from Present ConsumptionFutureConsumptionMarginal Utilityfrom FutureConsumption0-0-$5,000500$5,750900$10,000400$11,500800$15,000300$17,250700$20,000200$23,000600A. spend $5,000 now and $22,250 in the futureB. spend nothing now and $28,750 in the futureC. spend $15,000 now and $13,500 in the futureD....
The amount of protein that an individual must consume is different for every person. There are...
The amount of protein that an individual must consume is
different for every person. There are solid theoretical ideas that
suggest that the protein requirement will be normally distributed
in the population of the United States.The protein requirement is
given in terms of the number of grams of good quality protein that
must be consumed each day per kilogram body of weight (g P •
kg−1 • d−1.) The population mean protein
requirement for adults is 0.65 g P •...
Suppose that you must decide how much to work. Using the idea that the labor supply...
Suppose that you must decide how much to work. Using the idea
that the labor supply decision results from a trade-off between
leisure and income, answer the following questions. 1. Define the
problem that you must solve to figure out the optimal amount of
leisure and hours worked. 2. Derive the first-order condition for
your optimal decision. 3. Show why the labor supply curve slopes
upward with respect to the real wage. 4. Suppose that the real wage
falls from...
Suppose you pay $100, 000 now for a piece of equipment which earns you $50, 000...
Suppose you pay $100, 000 now for a piece of equipment which
earns you $50, 000 a year for the next 4 years. At the end of year
4, you can resell the piece of equipment for $30, 000. (a) What is
the internal rate of return on this investment? (b) Suppose that
you also have to pay $10, 000 in year 2 for a repair. What is the
internal rate of return now?
You have gifted 20000 dollars and want to use this 30 years from now. How much...
You have gifted 20000 dollars and want to use this 30 years from
now. How much more money will you have (FV) if interest rates are
6% or 7%??
How much is $100 worth 2 years from now if the annual rate of interest is...
How much is $100 worth 2 years from now if the annual rate of
interest is 12% and compounding frequency is: (Hint: figure out the
correct “m” and apply the FVn formula)
a) Yearly
b) 18 seconds
c) 4.3 Months
d) Every 4 years
If the marginal propensity to consume is 0.75, how much is the spending multiplier? If the...
If the marginal propensity to consume is 0.75, how much is the
spending multiplier? If the marginal propensity to consume drops to
0.5, how much is the new spending multiplier?
How much must you invest now to have 350,000 in 15 years if the interest rate...
How much must you invest now to have 350,000 in 15 years if the
interest rate is 10% and compounds continuously?
$65,457.33
$66,666.67
$63,848.93
$56,666.67
None of these
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