Web Problem Set 03 - RP, Labour-Leisure, Two-Period

For every 1 borrowed today not so must pay back 125

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Unformatted text preview: ot-So must pay back $1.25 tomorrow. What is Not-So's budget line? How does it compare with Mr. Lucky's? 3 7. This question involves someone who lives through two periods of time. In the first period, her income is $100,000 and in the second period her income is $210,000. She can lend or borrow at a rate of interest of 5%. Prices remain constant. a) Draw her budget constraint. What is its slope? b) The interest rate increases to 7%. Now draw the new budget constraint. What impact do you expect this increase in the interest rate to have on her borrowing/saving?...
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This note was uploaded on 08/04/2013 for the course ECO 200Y1Y taught by Professor Williamg.wolfson during the Fall '11 term at University of Toronto.

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