Business, 29.01.2021 17:20 riveg

Suppose you have an income of $200 this year and you expect an income of $110 next year. You can borrow and lend money at an interest rate of 10%. Consumption goods cost $1 and there is no inflation. (a) (10 PTS Write the present value and the future value of your endowment? Show your budget set on the graph
(b) [10 PTS] Suppose that you have the utility function U (C1, C2) = Cic. Find analytically your optimal choice and show it on the graph. Does the optimal consumption involve saving or borrowing? Find optimal savings S.
(c) [10 PTS) Find the optimal consumption bundle when r = 15%.
(d) [10 PTS] Suppose that consumption in the two periods are perfect complements, so that your utility function is U (C1, C2) = min {c1, c2} Does the optimal consumption involve saving or borrowing when r = 10% and when r = 15%?
(e) [10 PTS Suppose that consumption in the two periods are perfect substitutes, so that your utility function is U (C1, C2) = C1+c2. Does the optimal consumption involve saving or borrowing when r = 10% and when r= 15%?

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