Another issue facing millennials is the growing income and wealth inequality. We will use our model to
Question:
Another issue facing millennials is the growing income and wealth inequality. We will use our model to understand the implications of this issue.
A. Begin from the baseline preferences and endowment of question 1 . Assume Xavier is wealthier than Yuri; he ha s an endowment of 1100 pounds for each period (E 1 =E 2 =1100). Yuri has an endowment of only 900 pounds in each period (E 1 =E 2 =900). Note that the total amounts have not changed (1100 + 900 = 1000 + 1000 = 2000). Determine the equilibrium interest rate.
B. Explain how and why the interest rate changes as Yuri (millennials) becomes relatively poorer and the wealth distribution becomes unequal. (5 sentences)
C. Do you get the same result if Yuri is the wealthier person? Why? (5 sentences)
Expert Answer:
ANSWERS A In this scenario the equilibrium interest rate will be higher than in the baseline scenari... View the full answer
