Borrow at an interest rate

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Tummy Fullfigured has an intertemporal utility function which can be specified as U(c1,c2)= min{c1,ßc2}. Where c1 and c2 are his consumption in periods 1 and 2, respectively, and ß is a discount rate with value 0.95, meaning that consumption in period 2 is not valued as much as consumption in period 1. Tummy earns $180 in period 1, and he will earn $77 in period 2. He can borrow at an interest rate of 10% and lend (save) at the same interest rate of 10%. There is no inflation. Which of the following is true?

a) Tummy will save $50

b) Tummy will borrow $50

c) Tummy will save $55

d) Tummy will neither borrow nor lend e) None of the above, Tummy will save:_______

Reference no: EM131764704

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