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'll'l point [graded] Suppose that there are only '10 individuals in the economy each with the following utility function over present and future consumption: U

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'll'l point [graded] Suppose that there are only '10 individuals in the economy each with the following utility function over present and future consumption: U (cl , 02) = cl | @112, where cl is consumption today] and 23 is consumption tomorrow. Consumption tomorrow is less valued because people are impatient and prefer consuming now rather than later. Buying 1 unit of consumption today costs $1 today and buying 1 unit of consumption tomorrow costs $1 tomorrow. All individuals have income of $10 dollars today and no income tomorrow (because they will be retired] but they can save at the market interest rate -r 2 0. What is the price today of one unit of consumption tomorrow? To verify that you have the correct answer, calculate the price today of one unit of consumption tomorrow if 1" = 0.05. p: 0.95 V 0.95 You have used 1 of 2 attempts 53'"? Show answer Problem P8922 Df'l point [graded] Write an expression for an individual's budget constraint in terms of today's and tomorrow's consumption expenditure. To verify that you have the correct answer, calculate the maximum you can consume today if you consume 6.24 tomorrow and the interest rate is 0.07. 0'1: 4.05 8 4.05 Smeit You have used 2 of 2 attempts Show answer How much of his or her income will an individual consume today given that the interest rate is 0.3? 0 Less than half of it Q Exactly half of it Q The individual is indiflerent between consuming today and saving C} More than half of it C} All of it 0 None oi it How much of his or her income will an individual consume today given that the interest rate is 0.5? 0 Less than half of it Q The individual is indiflerent between consuming today and saving 0 None of it C} All of it 0 More than half of it 0 Exactly half of it How much of his or her income will an individual consume today given that the interest rate is 0.7? 0 Less than half of it 0 All of it 0 None of it 0 More than half of it 0 Exactly half of it Q The individual is indifferent between consuming today and saving Problem PSQ.2.4 5 points possible {gradedl Suppose that in this economy all the funds for capital come from savings by the 10 individuals. Firms' demand for capital is given by Q}; = 100 100?; What is the market supply for funds if the interest rate is 30%? Q3: What is the market supply for funds if the interest rate is 70%? Qs= What is the equilibrium interest rate that clears the capital market? r: What is aggregate consumption in each period at that interest rate? 0'1 Submit You have used 0 of 2 attempts save

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