a) Depict in a graph the optimal consumption bundle of a consumer who is a borrower...
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a) Depict in a graph the optimal consumption bundle of a consumer who is a borrower in the two-period credit market model b) Now suppose that the real interest rater falls. Show graphically how this change affects the choice of current and future consumption (you can use the graph from part (a)). c) Describe the substitution effect and the income effect of the decrease in real interest rate r on current and future consumption. d) Suppose that the substitution effect dominates the income effect. How does a decrease in real interest rate r affect savings. Briefly explain. a) Depict in a graph the optimal consumption bundle of a consumer who is a borrower in the two-period credit market model b) Now suppose that the real interest rater falls. Show graphically how this change affects the choice of current and future consumption (you can use the graph from part (a)). c) Describe the substitution effect and the income effect of the decrease in real interest rate r on current and future consumption. d) Suppose that the substitution effect dominates the income effect. How does a decrease in real interest rate r affect savings. Briefly explain.
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Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Posted Date:
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