John has the following utility function U(C, C2) = min{c + ac2, C2), where c and...

 

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John has the following utility function U(C₁, C2) = min{c₁ + ac2, C2), where c₁ and ₂ are his consumption in periods 1 and 2, respectively and a is some positive constant. Suppose John has $100 income in period 1 and $105 income in period 2. Prices in both periods are $1. Question 2 Part al Suppose a = 2. If John can freely borrow and lend at 5% interest rate what would be his optimal consumption in both periods? Question 2 Part a2 Suppose a = 2. Now, John can lend at 5% interest rate, but can't borrow at all. What would be his optimal consumption in both periods? Question 2 Part bl Suppose a = 0.5. If John can freely borrow and lend at 5% interest rate what would be his optimal consumption in both periods? Question 2 Part b2 = Suppose a 0.5. Now, John can lend at 5% interest rate, but can't borrow. What would be his optimal consumption in both periods? John has the following utility function U(C₁, C2) = min{c₁ + ac2, C2), where c₁ and ₂ are his consumption in periods 1 and 2, respectively and a is some positive constant. Suppose John has $100 income in period 1 and $105 income in period 2. Prices in both periods are $1. Question 2 Part al Suppose a = 2. If John can freely borrow and lend at 5% interest rate what would be his optimal consumption in both periods? Question 2 Part a2 Suppose a = 2. Now, John can lend at 5% interest rate, but can't borrow at all. What would be his optimal consumption in both periods? Question 2 Part bl Suppose a = 0.5. If John can freely borrow and lend at 5% interest rate what would be his optimal consumption in both periods? Question 2 Part b2 = Suppose a 0.5. Now, John can lend at 5% interest rate, but can't borrow. What would be his optimal consumption in both periods?

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Question 2 Part al If a 2 and John can freely borrow and lend a... View the full answer