What is the market interest rate

Reference no: EM13197033

Seth could consume $120 next year if he saved all his current earnings. He expects to earn nothing next year. The intertemporal budget constraint for Seth is given by the equation C2 = 120 - 1.2C1 where C1 = possible consumption in year 1 and C2 = possible consumption in year 2. Assume that C1 is on the horizontal axis and C2 is on the vertical axis. What is the market interest rate? Assuming Seth starts from a position where he earns all his income in the beginning of year 1, sketch Seth's intertemporal budget constraint and show one of his indifference curves for a case
where he will save $20 for year two.

Reference no: EM13197033

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