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Please provide work and brief explanation! Thank you You are given the following information: Y (Yl,Y2) = (100,400), r Now assume that the real interest
Please provide work and brief explanation! Thank you
You are given the following information: Y (Yl,Y2) = (100,400), r Now assume that the real interest rate decreases from 30% to 10%. Draw an intertemporal choice diagram for an individual who is a borrower both before and after the interest rate change. Label the endowment as point Y, the initial optimal consumption bundle as point A, the final optimal consumption bundle as point C, and use point B to determine the substitution and income effects for Cl. [Make the standard assumptions that the magnitude of the substitution effect is larger than the magnitude of the income effect, and that both Cl and are normal goods. You may want to practice a sketch on some scratch paper.]
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