Exam 10:Intertemporal Choice-Part A

Mr.O.B.Kandle has a utility function c₁c₂,where c₁ is his consumption in period 1 and c₂ is his consumption in period 2.He will have no income in period 2.If he had an income of $70,000 in period 1 and the interest rate increased from 10 to 17%,

An increase in the interest rate cannot make a lender who satisfies WARP become a borrower.

A utility-maximizing consumer would not choose the investment that maximizes the present value of her income stream unless she planned to spend her entire wealth in the first period.

If the real interest rate is positive,then a unit of future consumption can be had for the sacrifice of less than 1 unit of current consumption.

In an isolated mountain village,the only crop is corn.Villagers plan for two time periods.In the first time period each villager will harvest 100 bushels.In the second time period,no corn will be harvested.There is no trade with the rest of the world and no stocks of corn remain from before the first period.Corn can be stored from one time period to the next,but rats eat 25% of what is stored.The villagers all have Cobb-Douglas utility functions U(C₁,C₂)=C₁C₂ and can allocate their own corn between consumption and storage as they wish.If the introduction of cats to the village reduces the rats' predations to 10% of what is stored,

An increase in the interest rate can make a utility-maximizing lender become a borrower.

Peregrine consumes ($1,300,$1,320)and earns ($1,000,$1,680).If the interest rate is 0.20,the present value of his endowment is

Harvey Habit has a utility function U(c₁,c₂)=min{c₁,c₂}.If he had an income of $1,230 in period 1 and $615 in period 2 and if the interest rate were 0.05,how much would Harvey choose to spend on bread in period 1?

Isaiah is a net borrower when the interest rate is 5% and a net saver when the interest rate is 25%.An increase in the interest rate from 5 to 25% may make Isaiah worse off.

Molly has income $400 in period 1 and income $600 in period 2.Her utility function is c^a₁c^{1 - a}₂,where a = 0.40 and the interest rate is 0.20.If her income in period 1 doubled and her income in period 2 stayed the same,her consumption in period 1 would

An increase in the interest rate will necessarily result in a decrease in the present value of a given stream of positive incomes.

Mr.O.B.Kandle will live for only two periods.In the first period he will earn $100,000.In the second period he will retire and live on his savings.Mr.Kandle has a Cobb-Douglas utility function U(c₁,c₂)=c²₁c₂,where c₁ is his period 1 consumption and c₂ is his period 2 consumption.The real interest rate is r.

In a graph that has current consumption on the horizontal axis and future consumption on the vertical axis,the horizontal intercept of the budget line is the present value of all one's income in the two periods.

The intertemporal budget constraint for a consumer can be expressed by setting the present value of her lifetime consumption equal to the future value of her endowment.

Samantha Smoothie's utility function is U(c₁,c₂)=c₁c₂,where c₁ is her consumption in period 1 and c₂ is her consumption in period 2.She earns $200 in period 1 and $220 in period 2.Samantha can borrow and lend at an interest rate of 10% and there is no inflation.The number of dollars that Samantha spends in the second period must be

If the price level increases by 80% in one year,then for the real rate of interest to be 10%,the nominal rate of interest would have to be

The nominal interest rate is 5% and the inflation rate is 6%.A rational consumer will not choose to save.

Vanessa's utility function is U(c¹,c²)=c^1/2₁+0.83c^1/2₂,where c₁ is her consumption in period 1 and c₂ is her consumption in period 2.In period 2,her income is 4 times as large as her income in period 1.At what interest rate will she choose to consume the same amount in period 2 as in period 1? (Choose the closest answer. )

If the nominal interest rate is 3% and if prices fall by 2% per year,then the real rate of interest is approximately 5%.

A newspaper article claims that more students are choosing 1-year M.B.A.programs instead of 2-year programs because the 2-year programs no longer guarantee a well-paid job.If the length of your M.B.A.program doesn't matter to employers,and you take a job right after completing your M.B.A. ,the present value of your lifetime earnings is the same whether you take a 1-year or 2-year program.