2) Yudit spends her income on consumption between two periods - C1 and C2. Both C1...

 

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2) Yudit spends her income on consumption between two periods - C1 and C2. Both C1 and C2 are normal goods. Assume that in the initial position, Yudit's income in the first period is smaller than her income in the second period. Yudit is indifference between present and future and has a convex utility function. The interest rate is equal to the inflation rate in the initial position. a. (6) Draw Yudit budget constraint and her optimal bundle. Point out C1 and C2 in the optimal bundle, the intercepts and the slope. b. (3) Are Yudit savings positive/negative/zero? Explain. c. (5) What will happen to Yudit's utility if the inflation rate increases? Point out the range of the new bundle. d. (6) Show in a new graph the Slutzky's compensation that is needed due to the increase in the inflation rate and point out the new bundle. Show also the substitution and real income effects on the same graph. e. (7) Ignore paragraphs b and c (go back to a). Suppose that the interest rate increases. Show the change on graph and point out the new bundle. f. (6) How would your answer to paragraph e will change if it is known that only the interest rate for those who loans money changed and not the 2) Yudit spends her income on consumption between two periods - C1 and C2. Both C1 and C2 are normal goods. Assume that in the initial position, Yudit's income in the first period is smaller than her income in the second period. Yudit is indifference between present and future and has a convex utility function. The interest rate is equal to the inflation rate in the initial position. a. (6) Draw Yudit budget constraint and her optimal bundle. Point out C1 and C2 in the optimal bundle, the intercepts and the slope. b. (3) Are Yudit savings positive/negative/zero? Explain. c. (5) What will happen to Yudit's utility if the inflation rate increases? Point out the range of the new bundle. d. (6) Show in a new graph the Slutzky's compensation that is needed due to the increase in the inflation rate and point out the new bundle. Show also the substitution and real income effects on the same graph. e. (7) Ignore paragraphs b and c (go back to a). Suppose that the interest rate increases. Show the change on graph and point out the new bundle. f. (6) How would your answer to paragraph e will change if it is known that only the interest rate for those who loans money changed and not the

Answer rating: 100% (QA)

a 6 Draw Yudit budget constraint and her optimal bundle Point out C1 and C2 in the optimal bundle the intercepts and the slope Answer The budget constraint for Yudit can be expressed as C2P2 M P1C1 P2 ... View the full answer