Homework4

Homework4 - Econ 352 Intermediate Economics YiLi Chien...

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Econ 352 YiLi Chien Intermediate Economics Spring 2011 Homework Assignment 4 Due on April 27 th in class Question 1 (35 pts): Suppose Jill obeys the two-period model of consumption and earns nothing in the first period and $210 in the second period. In addition, she can borrow or lend at the interest rate r . a. (20 pts) What will happen to Jill’s consumption in the first period when the interest rate increases? Is Jill better off or worse off? Show your result in graphs. (Remember to discuss substitution effect and income effect) b. (15 pts) Suppose Jill receives a $50 income transfer from her parents at period one. Her income in period two is unchanged. Illustrate graphically how this income transfer affects Jill’s consumption in periods one and two. Question 2 (35 pts): Consider a two period choice model with a consumer and a government. The government spending is exogenously given, the spending in first and second period both are 10. The consumer’s incomes are 1 60 Y = in the first period and 2 43 Y = in the second period. The consumer can borrow and save at the interest rate
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Homework4 - Econ 352 Intermediate Economics YiLi Chien...

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