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Please find question attached below in the for of image file: 21. Patience has an intertemporal utility function u(cl, c2) = c: + 2c2 where
Please find question attached below in the for of image file:
21. Patience has an intertemporal utility function u(cl, c2) = c: + 2c2 where is her consumption in period 1 and c2 is her consumption in period 2. She earns an income mi = 90 in period 1 and an income m2 = 240 in period 2. (a) (b) Assume Patience can lend and borrow at an interest rate r = 0.2. What is her present value budget constraint? What is her optimal consumption in the two periods ? Given your answer at point a, is Patience a lender or a borrower? Assume the interest rate increases, will she continue to lend/borrow? Motivate your answer.
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