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In: Economics

Jenifer lives two periods. In the first period her income is fixed at $10,000; in the...

  1. Jenifer lives two periods. In the first period her income is fixed at $10,000; in the second it is $20,000. She can borrow and lend at a rate of 10%.
  1. The interest rate increases to 15%. Intuitively (you don’t have to draw the graph) what do you expect this to do to her saving? Explain.
  2. Imagine Jenifer can only save, but cannot borrow. If she still faces an interest rate of 10%, show her budget constraint.
  3. Would this borrowing constraint necessarily affect Jenifer’s behavior? Explain.

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Expert Solution

Rahul Sunny answered 8 months ago
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