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Question 4 (10 points) (10 marks] For the following question, You get 2 mark from choosing the correct answer. You get up to 7 marks
Question 4 (10 points) (10 marks] For the following question, You get 2 mark from choosing the correct answer. You get up to 7 marks for the detailed solution. You need to show your result on a graph to get full mark. A consumer live for only two periods. In the first period she will earn $50,000. In the second period she will retire and live on her savings. Her utility function is U (C1,C2) = C1C2, where c is her period 1 consumption and ca is her period 2 consumption. She can save and borrow at the interest rate is r=0.1 and there is no inflation. If the interest rate rises, (a) She will consume more in period 1. (b) She will consume less in period 1. (c) She will consume the same amount in period 1. (d) She will consume the same amount in both period 1 and period 2. (e) She will consume less in period 2
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