Marcel has the utility function U(C1, C2) = 2ln(c) + 3 In(c2) where c and c...

 

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Marcel has the utility function U(C1, C2) = 2ln(c) + 3 In(c2) where c and c are his consumption in periods 1 and 2, respectively. He will earn $200 in period 1 and $240 in period 2. He can borrow or save at an interest rate of 10% and the price of the consumption good is $1 in each period. a. [2] Write Marcel's present-value and future value budget constraints. b. [10] If Marcel does not trust banks and decides to keep his savings in cash, solve for his optimal level of consumption in each period. Assume that he does not have access to other sources of credit. c. [10] Marcel decides to give crypto-banking a chance and he can now borrow and save at the prevailing interest rate. Solve for his optimal level of consumption in each period. Is he a saver or a borrower? d. [3] Are Marcel's preferences consistent with discounting of his future consumption? Explain. Marcel has the utility function U(C1, C2) = 2ln(c) + 3 In(c2) where c and c are his consumption in periods 1 and 2, respectively. He will earn $200 in period 1 and $240 in period 2. He can borrow or save at an interest rate of 10% and the price of the consumption good is $1 in each period. a. [2] Write Marcel's present-value and future value budget constraints. b. [10] If Marcel does not trust banks and decides to keep his savings in cash, solve for his optimal level of consumption in each period. Assume that he does not have access to other sources of credit. c. [10] Marcel decides to give crypto-banking a chance and he can now borrow and save at the prevailing interest rate. Solve for his optimal level of consumption in each period. Is he a saver or a borrower? d. [3] Are Marcel's preferences consistent with discounting of his future consumption? Explain.

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