Consider a two-period living consumer with a utilityfunction, u(c)=sqrt(c). Suppose the real interest rate,R=10% and the utility discount factor, beta=0.95. Ifthe consumer wants to maximize lifetime utility, whatwill be the growth rate of her consumption from thecurrent to the future period? *

Given, A two period living consumerUtility Function : U(c) =sqrt(c)Real Interest rate, R=10%Utility…

Answered: Consider a two-period living consumer…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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am. 217.
How does savings change with changes in y2? Provide some intuition behind this result.
In an intertemporal optimizing model consumption, a consumer living from time zero (0) to time t has a longer utility: U (C)= ln C. The market interest rate is r and the consumer is assuming no inheritance. Derive the consumption relationship and the marginal utilities between two adjacent periods. Using a diagram, explain the time profiles of paths based on (i) above. Show that consumption is proportional to the present value of future income at time zero (0) at a given interest rate.
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If you draw the cash flows from any investment, you would have negative cash flows at the beginning, and then you would receive a stream of positive cash flows thereafter. So why do we need the separate concept of a J-curve? In other words, what is the difference between a J-curve and the cash profile of any other investment?
Scenario 21-3 Scott knows that he will ultimately face retirement. Assume that Scott will experience two periods in his life, one in which he works an earns income, and one in which he is retired and earns no income. Scott can earn $250,000 during his working period and nothing in his retirement period. He must both save and consume in his work period with an interest rate of 10 percent on savings. Refer to Scenario 21-3. If the interest rate on savings increases, a. Scott will always increase his savings in the work period. b. Scott will increase his savings in the work period if the income effect is greater than the substitution effect for him. c. Scott will decrease his savings in the work period if the income effect is greater than the substitution effect for him. Od. Scott will decrease his savings in the work period if the substitution effect is greater than the income effect for him. C
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Holly's utility function is U(c1, c2) = c/21 + 0.87d/22, where cq is her consumption in period 1 and c2 is her consumption in period 2. In period 2, her income is twice 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.) Group of answer choices 0.30 0.08 0.23 0.15

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Consider a two-period living consumer with a utility function, u(c)=sqrt(c). Suppose the real interest rate, R=10% and the utility discount factor, beta=0.95. If the consumer wants to maximize lifetime utility, what will be the growth rate of her consumption from the current to the future period? *