Essay
Buzz is a chicken farmer.His earnings will be $100 this year and $100 next year.He can lend money at an interest rate of 20%.Because of a subsidized loan program for chicken farmers, he can borrow money at an interest rate of 10%.No matter what he borrows or lends, his earnings will still be $100 each year.
a.If he is not allowed to either borrow or lend, draw a graph showing his budget between consumption this year and consumption next year.Put numerical labels on the vertical and horizontal intercepts of the budget set.
b.Suppose that Buzz is allowed to borrow up to the present value of next year's earnings at 10% and is also allowed to make loans.Draw Buzz's budget constraint in this case.
Correct Answer:
Verified
a.His budget line is kinked at (100, 100...View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Correct Answer:
Verified
View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Q19: In an isolated peasant village, the only
Q20: The nominal interest rate is 5% and
Q21: Susan is a net borrower when the
Q22: If the interest rate is less than
Q23: Molly has income $200 in period 1
Q25: A newspaper article claims that more students
Q26: Roger's utility function is U = min{a<sub>1</sub>,
Q27: The intertemporal budget constraint for a consumer
Q28: If a consumer can borrow and lend
Q29: Samantha Smoothie's utility function is U(c<sub>1</sub>, c<sub>2</sub>)=