O Barnabus' income in period 1 (current) is $50,000. His income in period 2 (future) will be $60,000. If Barnabus saves money, he will be paid 8% interest. If Barnabus borrows money he has to pay 12% interest. At those interest rates Barnabus is neither a borrower nor a lender. Show Barnabus's budget constraint, and the indifference curve passing through his best bundle.

O Barnabus' income in period 1 (current) is $50,000. His income in period 2 (future) will be $60,000. If Barnabus saves money, he will be paid 8% interest. If Barnabus borrows money he has to pay 12% interest. At those interest rates Barnabus is neither a borrower nor a lender. Show Barnabus's budget constraint, and the indifference curve passing through his best bundle.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 4SCQ: Edna is living in a retirement home where home where most of her needs are taken care of, but she...

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Suppose a person lives for 4 periods. His salary during each period of his life is $30, $60, $90 and $0. He was born without any financial wealth. 1. If the interest rate is 8% per period, what is the present value of the income of this agent? 2. If the individual wishes to have a constant consumption during his life, what will it be? Deduct his level of savings during each of the 4 periods of his life. 3. Suppose our individual cannot borrow (but can save). Determine the consumption and savings profile of the individual. 4. Suppose our individual receives an inheritance at birth of $10. How your answer in c) be affected?
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