If a person in a two period life was informed (early in her first period) that...

If a person in a two period life was informed (early in her first period) that her income in the second period would be $1000 greater than previously expected, and if her tastes made her prefer consuming the same amount in both periods, and the interest rate was 25%, then:

(a) how would her consumption change in the first period?

(b) what would be the change in her PVLR?

Solutions

Expert Solution

a) her comsumption would change according to her two period life as it changes to its own time.

b) PVLR would change according to her own interest rate and time period this would give her the comsumption level also.

Rahul Sunny answered 2 years ago

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