Question: Smith receives 100 of income this period and 100 next

Smith receives $100 of income this period and $100 next period. At an interest rate of 10 percent, he consumes all his current income in each period. He has a diminishing marginal rate of time preference between consumption next period and consumption this period. True or false: If the interest rate rises to 20 percent, Smith will save some of his income this period. Explain.

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  • CreatedDecember 12, 2014
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