What is the present value of stephany endowment

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Stephany has an income of $2,000 this year, and she expects an income of $1,100 next year. She can borrow and lend money at an interest rate of 10%. Consumption goods cost $1 per unit this year and there is no inflation.

1. What is the present value of Stephany’s endowment? What is the future value of her endowment? With blue ink, show the combinations of consumption this year and consumption next year that she can afford in a graph. Put “Consumption this year in 1,000s” on the horizontal axis and “Consumption next year in 1,000s” on the vertical axis. Label Stephany's endowment with the letter E.

2. Suppose that Stephany has the utility function U(C1, C2) = C1C2. Write an expression for Stephany's marginal rate of substitution between consumption this year and consumption next year. (Your answer will be a function of the variables C1, C2.).

3. What is the slope of Stephany's budget line?

Reference no: EM13152492

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