The current market interest rate

Assignment Help Business Economics

Reference no: EM13983885

Yasmine’s income this period is $500 and she is certain that her income next period is $300. The current market interest rate is 10 percent. She plans to spend exactly her current income this period and her future income next period, with no borrowing or saving. Yasmine has a diminishing marginal rate of time preference.

(a) With the aid of a diagram, explain if you can determine Yasmine’s optimal consumption C₁ and C₂ in the two periods.

(b) Before Yasmine actually carries out her consumption plan, the market interest rate drops to 5 percent. Explain if she will change her consumption plan.

Reference no: EM13983885

Questions Cloud

Deficit might lead to an appreciating currency-trade deficit : Explain how a budget deficit might lead to an appreciating currency and a trade deficit. Explain the introduction of the foreign sector makes the fiscal policy tool of the budget deficit less effective in stimulating the open, as compared to the clos..

Most appropriate entry method : The U.S. Commercial Service prepares reports known as the Country Commercial Guide for countries of interest to U.S. investors. Utilize the Country Commercial Guide for Brazil to gather information on this country's energy and mining industry. Consid..

Competitive market-describe by the supply and demand model : Consider our competitive market, describe by the supply and demand model. If there are no externalities, explain why economists describe the competitive equilibrium an efficient. Do these firms have an incentive to reduce their pollution? Modern econ..

Find equilibrium wage and equilibrium level of employment : Assume that labor supply and labor demand are described by the following equation -labor supply: L=5w -labor demand: L=110-0.5w where w=wage expressed in dollars per hour, and L(s) and L(d) are expressed in millions of workers. find the equilibrium w..

The current market interest rate : Yasmine’s income this period is $500 and she is certain that her income next period is $300. The current market interest rate is 10 percent. She plans to spend exactly her current income this period and her future income next period, with no borrowin..

Is current monetary policy expansionary or contractionary : Is the current Monetary Policy expansionary or contractionary? Give your reasons for your answer. What effects does the Federal Reserve expect this policy to have on the U.S. economy?

Calculate the market equilibrium price and quantity : Suppose that there are 100 identical firms in a market. Each firm has a short-run marginal cost and average variable cost functions given by. Determine the supply function of each firm. Determine the market supply function. Suppose that the market de..

Pricing objectives need not be explicitly stated : The best way to do a sales analysis is to first break down sales by customer type, and then geographic region. Pricing objectives need not be explicitly stated. "Psychological pricing" involves setting prices which end in certain numbers, while "odd-..

Deficit spending under control : What recommendations have been made to bring deficit spending under control? Which of the proposals do you think holds the most promises? Explain your rationale.

User Account

All Pages