This preview shows page 1. Sign up to view the full content.
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
View Full Document