Sara earns $200 in the first period and $100 in the second period. She lives in the
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Question:
Sara earns $200 in the first period and $100 in the second period. She lives in the two-period Fisher model of consumption. Therefore, she can borrow or lend at the interest rate r. considering the two-period Fisher's model,
a) Write down her intertemporal budget constraint.
b) Assume that She is consuming 150 in the first-period and 160 in the second-period. What is the interest rate?
c) What will happen to Sara's consumption if the interest rate changes to r=10%. Support your interpretation with a related graph.
d) What will happen to Sara's consumption if interest rate changes to r=30%. Support your interpretation with a related graph.
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