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Consider an economy with two periods and a single consumer good. A consumer has a monetary income in period 1 of CU200 and will receive
Consider an economy with two periods and a single consumer good. A consumer has a monetary income in period 1 of CU200 and will receive in period 2 an income of CU320. Consumer preferences about present consumption C1 and future C2 can be represented by the utility function U (c1, c2) = C1 C2. Assuming that the present consumption price, P1 is equal to 1 and the future consumption price, P2 is equal to 2 and the market interest rate is 20%. a) Obtain the individual's budget constraint and represent it graphically. b) Derive the present and future consumption demand functions and the saving function of the individual. c) In equilibrium, will the consumer be a lender or borrower? and in your case, how much do you lend or borrow?
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