Suppose there are two periods (1 is now and 2 is later). Your contemporaneous utility function...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Suppose there are two periods (1 is now and 2 is later). Your contemporaneous utility function is log c and you discount utility in period 2 with discount factor 0 < d < 1. In both periods you have income č. Now there is a bank that is willing to lend or to store money. The bank charges interest at rate r on loans and pays interest at the same rate on deposits. (You had a fight with your mum and she is no longer willing to lend you any money.) Unfortunately, at the beginning of period 1, you damage the neighbor's expensive BMW playing backyard cricket, and you have to pay z dollars for the repair (in period 1). Assume & 0.8, = 20, 000, r = 0.1, and z = 10, 000. How much money will you save or borrow? Suppose there are two periods (1 is now and 2 is later). Your contemporaneous utility function is log c and you discount utility in period 2 with discount factor 0 < d < 1. In both periods you have income č. Now there is a bank that is willing to lend or to store money. The bank charges interest at rate r on loans and pays interest at the same rate on deposits. (You had a fight with your mum and she is no longer willing to lend you any money.) Unfortunately, at the beginning of period 1, you damage the neighbor's expensive BMW playing backyard cricket, and you have to pay z dollars for the repair (in period 1). Assume & 0.8, = 20, 000, r = 0.1, and z = 10, 000. How much money will you save or borrow?
Expert Answer:
Answer rating: 100% (QA)
To determine whether you should save or borrow money we need to compare the present value of the cos... View the full answer
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Posted Date:
Students also viewed these economics questions
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Suppose again (as in exercise 17.12) that the payoff from engaging in a life of crime is x1 if you don't get caught and x0 (significantly below x1) if you end up in jail, with representing the...
-
Lang Enterprises was started when it acquired $4,000 cash from creditors and $6,000 from owners. The company immediately purchased land that cost $9,000. Required a. Record the events under an...
-
The column is used to support the upper floor. If a force F is applied perpendicular to the handle to tighten the screw, determine the compressive force in the column. The square-threaded screw on...
-
The mean water temperature downstream from a power plant cooling tower discharge pipe should be no more than 100F. Past experience has indicated that the standard deviation of temperature is 2F. The...
-
Timothy Muse opened a law office on October 2, 2010. During the first month of operations, the business completed the following transactions: Requirements 1. Open the following T-accounts: Cash,...
-
You have been assigned to collect thermodynamic data for a new liquid product your company is about to begin manufacturing and you decide to use a continuous-flow technique to generate a correlation...
-
What are the principles behind advanced seismic design strategies in civil engineering, and how do they incorporate innovative technologies such as base isolation and damping systems to enhance the...
-
In November 2011, after having incorporated Cookie Creations Inc., Natalie begins operations. She has decided not to pursue the offer to supply cookies to Biscuits. Instead, she will focus on...
-
Heated air at 60 C and 8% RH is blown through a dryer. The air exits the dryer at 35 C. What is the quantity of water to be removed per kgDA? 5.
-
For the function f(x,y) = sin (xy), calculate the gradient vector at the point (x, y) = Enter exact values, using the palette if needed. = Vf V (17) 4 T
-
Write a C++ function (with name Pow) that represent the following expression (5 Marks) Y=X Note: You need to assume that the user can call the function with int or double augments. Hint: use function...
-
We've covered quite a bit of ground over the last several weeks and I hope you all now have a better understanding of microeconomics. For this week's discussion, I'd like you to reflect on what...
-
Singh Company sold 75 units @ $350 each on October 31, Year 2. The following information is also available: Beginning inventory 25 units @ $175 February 2 purchase 20 units @ $180 June 15 purchase 45...
-
How do environmental factors, including climate change, resource scarcity, and ecological degradation, shape patterns of social inequality, collective action, and global governance structures within...
-
A plant manager is thinking about to buy a new equipment in order to manufacture a new product. 1 il ili In calculating returns, assets are valued at the beginning of the year. The sales quantity...
-
On October 31 Juanita Ortega, owner of Outback Guide Service, received a bank statement dated October 30. Juanita found the following: 1. The checkbook has a balance of $2,551.34. 2. The bank...
-
Whenever we have modeled political candidates who stand for election, we have assumed that they care only about winning and are perfectly content to change their position in whatever way maximizes...
-
Subsistence Levels of Consumption: Suppose you are interested in modeling a policy issue involving poor households in an under-developed country. A: The households we are trying to model are...
-
Every Thanksgiving, my wife and I debate about how we should prepare the turkey we will serve (and will then have left over). My wife likes preparing turkeys the conventional way roasted in the oven...
-
Yvonne had the following transactions in the shares of Scotia plc: Sally's capital gains tax position in 2023-24 was as follows: You are required to: (a) Calculate Yvonne's chargeable gain. (b)...
-
In February 2014, Maria bought a diamond necklace for 13,500. In 2017 the necklace was stolen and, as a result, an insurance payment of 14,000 was received in February 2018. In the same month, Maria...
-
Jerome made the following gifts to family members during tax year 2023-24: (1) On 28 May 2023, Jerome made a gift of a house valued at 187,000 to his wife. His uncle had originally purchased the...
Study smarter with the SolutionInn App