Oliver gets an allowance of $100 this week and $112 next week. Let c₁ and c₂ be his consumption (measured in units of stuff) this and next week, correspondingly. The price of one unit of stuff this week is $10. Next week, the price will be $14 because of inflation. Assume that the interest rate i (both for borrowing and lending) is 0.05. Write down the intertemporal budget constraint. Note, the prices shown already has inflation built into them. You do not have to reduce the budget constraint further.

Oliver gets an allowance of $100 this week and $112 next week. Let c₁ and c₂ be his consumption (measured in units of stuff) this and next week, correspondingly. The price of one unit of stuff this week is $10. Next week, the price will be $14 because of inflation. Assume that the interest rate i (both for borrowing and lending) is 0.05. Write down the intertemporal budget constraint. Note, the prices shown already has inflation built into them. You do not have to reduce the budget constraint further.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter10: Consumer Choice Theory

Section: Chapter Questions

Problem 10P

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