Suppose that U(c, c) = ln c + ln c, where > 0, and assume
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Suppose that U(c, c′) = ln c + β ln c, where β > 0, and assume that the consumer lends at the real interest rate r1 and borrows at the interest rate r2, where r1 < r2. Under what conditions is the consumer (a) a borrower, (b) a lender, and (c) neither a borrower nor a lender? Explain your results.
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a The consumer is a borrower if c 1 r 2 c b The consumer is a lender if ...View the full answer
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