Consumption under borrowing constraint

(a) With borrowing constraint, household can borrow until 200 in period 1. Under y1 =100, y2= 200, r= 0.2,

How much is maximum possible consumption of period 1?
How much is maximum possible saving of period 1? (under maximum possible of c1)
How much is maximum possible consumption of period 2? (under maximum possible of c1)

(b) With full borrowing constraint, household cannot borrow any money in period 1 and cannot consume as well. (C1 = 0)

Under y1 = 100, y2= 200, r= 0.2, How much is maximum possible consumption of period 2? Write budget constraint of period 2.

Answer rating: 100% (QA)

a With a borrowing constraint of 200 in period 1 and given y1 100 y2 200 and r 02 1 The maximum poss... View the full answer