Question

 

4-Rick and Patty both know that the risk-free interest rate on T-bills is 1%, and they both have the same rate of time preference. Patty decides not to buy any T-bills, but Rick buys several T-bills. Which of the following is most likely to have caused the difference in their actions?

A)Rick has a lower MRS than Patty.

B)Patty is more risk averse than Rick.

C)Rick and Patty used two different web sites and received differing information on inflation.

D)All of the above

 

5-Thanks to your stellar performance on the job, your supervisor awards you a bonus of $538. However,

things are tight for the company because of the pandemic, so your supervisor informs you that you

may get a bonus of $1,591 next year if you forego your bonus this year. If you accept this offer, what

$MRS have you revealed (in % terms to the nearest tenth, i.e., one decimal place)?

Answer 1

Answer - 4 ) Correct answer is option C i.e. Rick and Patty used two different web sites and received differing information on inflation .

Since this is the case of T Bills so there is no risk issue . Also they have same time preferences ,so therefore they have same MRS .

Answer - 5 ) For calculating $MRS Divide your future change in consumption by your present change in consumption and take the negative of the result

Therefore

$MRS = - ( $1591 / $538 )

= 2.9