Discussion3

# Discussion3 - Econ 100A/Summer 09 Discussion#3 1 Henry has...

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Econ 100A/Summer 09 Discussion #3 1. Henry has a utility function } , min{ ) , ( 2 1 2 1 c c c c u . If he had an income of \$600 in period 1 and \$1,400 in period 2 and if the interest rate were 0.20, how much would Henry choose to spend on consumption in period 1? (a) 10,600/11 (b) 10,000/11 (c) 10,100 (d) 10,000 Answer: (a) 2. Jenny is always indifferent between a unit of consumption today and tomorrow and the interest rate is 5%. (a) Her intertemporal indifference curve is horizontal (b) Her intertemporal indifference curve is a straight line with slope -1. (c) She will spend all of her current and future income on consumption today. (d) She will spend 5% more on consumption today than on consumption tomorrow. (e) She will spend 5% more on consumption tomorrow than on consumption today. Answer: (b) 3. Mark has income \$400 in period 1 and income \$600 in period 2. His utility function is a a c c , where a = 0.40 and the interest rate is 0.20. If his income in period 1 doubled and his income in period 2 stayed the same,

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Discussion3 - Econ 100A/Summer 09 Discussion#3 1 Henry has...

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