Is household better off or worst off with higher interest

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Reference no: EM13250527

Suppose that a household in a two-period model has income of $30,000 in period 1 and $25,000 in period 2, and interest rate is 75%.

Assume that the price of the goods is $1.00 in both periods. suppose that the household decides to consume $26,000 in period 1 and $32,000 in period 2. now suppose that the interest rate falls to 50%, and the household decides not to borrow or lend at all.

Is the household better off or worst off with the higher interest rate?

Reference no: EM13250527

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