# 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.

**View Solution:**## Answer to relevant Questions

At current prices, housing costs $50 per unit and the composite good has a price of 1 per unit. A wealthy benefactor has given Joe, a penniless person, 1 unit of housing and 50 units of the composite good. Now the price of ...Jane spent all her income on hot dogs and caviar. Her demand curve for caviar was inelastic at all prices for caviar. Unfortunately, an accident at a nuclear power plant caused the supply of caviar to fall and the price to ...Explain in detail what will happen to an insurance company that charges teen-age males the same rates for automobile insurance as it charges its other customers.Smith has an investment opportunity that pays 33 with probability 1/2 and loses 30 with probability 1/2. a. If his current wealth is M = 111, and his utility function is U = √M, will he make this investment? b. Will he ...Suppose your current wealth, M, is 100 and your utility function is U = M2. You have a lottery ticket that pays $10 with a probability of 0.25 and $0 with a probability of 0.75. What is the minimum amount for which you would ...Post your question