ux1, x2 2 x1
. The price of consumption is $1 in both periods. He has $6,000 in
the bank now and is trying to decide between two different investment opportunities, A
A: invest $5,000 in period 1 and receive $12,000 in period 2. B: invest $1,000 in period 1 and receive $3,000 in period 2.
a. If Jack can borrow and lend at a rate of interest of 50 percent, which investment opportunity will he choose? (Assume that Jack cannot invest more than $5000 if he chooses A, or $1000 if he chooses B.) Show your analysis
b. Given your answer in (a), how much will he consume in each period?
This question was asked on Jan 21, 2013 and answered on Jan 26, 2013.
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