Consider a consumer who lives for two periods. His utility is a function of consumption levels...

 

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Consider a consumer who lives for two periods. His utility is a function of consumption levels in periods 1 and 2 and is given by U(c1, c2) = clc2. His income in periods 1 and 2 are given by yl = y2 = y, that is income is the same in both periods. Due to expansionary monetary policy the market interest rate is equal to 0. Will this consumer decide to borrow or lend in period 1? Demonstrate your answer. Consider a consumer who lives for two periods. His utility is a function of consumption levels in periods 1 and 2 and is given by U(c1, c2) = clc2. His income in periods 1 and 2 are given by yl = y2 = y, that is income is the same in both periods. Due to expansionary monetary policy the market interest rate is equal to 0. Will this consumer decide to borrow or lend in period 1? Demonstrate your answer.

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The buyer spends most of his or her first income on the first purchase So Save S y C1 0 He i... View the full answer