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# Suppose that as a result of poor credit history she

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Unformatted text preview: han before? Since nothing else has changed, and her optimal choice without the constraint resulted in her borrowing, she will set s=0 and consume all of her income in each period. , , ; . Part C. Suppose instead that \$53,500; 0.12; 1; , . , , 1, while all the other variables stay the same: 1; 1.05. \$50,000; C1) Solve for the consumer’s optimal quantities of and . Again interpret the value of , that is what does tell you about her preferences for consumption today versus consumption tomorrow? , . , , . Since . . , this consumer places equal value on consumption today relative to consumption tomorrow. C2) What is her utility at the optimum? , , . , . C3) Is she a saver or borrower? How much does she save or borrow? , , , This consumer is a saver; her period one expenditures on consumption are less than her period 1 income. – , . . – this is the amount she saves. C4) How much income does she have to purchase consumpt tion in period 2 as a result of her savings/borrowing decision? , C5) How much does she earn/pay in interest? . ∗ . . \$ . , \$ . She earns this much in interest. C6) Figure 2 below plots the personal savings rate in the U.S . against the 3 month Treasury Bill rate (an interest rate). Up until the Monetary Control Act of 1980, th e pa...
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