Does she save/borrow more or less

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Reference no: EM13150109

Mrs. McNally has utility function u = c1 2/5 c2 3/5. Her income in periods 1 and 2 are m1 and m2, respectively. a. Write her budget constraint in PV and FV form. b. Solve for Mrs. McNally’s demand functions for consumption in each period as a function of her endowment of income and the interest rate, r. c. Suppose the interest rate increases. What happens to her period 1 consumption? Her period 2 consumption? Does she save/borrow more or less?

Reference no: EM13150109

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