Worse off than before the interest rate rise

Assignment Help Business Economics

Reference no: EM131108035

Gabe and Gita both obey the two period Fisher model of consumption. Gabe earns $100 in the first period and $100 in the second period. Gita earns nothing in the first period and $210 in the second period. Both of them can borrow or lend at interest rate r.

a. You observe both Gabe and Gita consuming $100 in the first period and $100 in the second. What is the interest rate r?

b. Suppose the interest rate increases. What will happen to Gabe’s consumption in the first period? Is Gabe better off or worse off than before the interest rate rise?

c. What will happen to Gita’s consumption in the first period when the interest rate increases? Is Gita better off or worse off than before the interest rate increase?

Reference no: EM131108035

Questions Cloud

Evaluate the relative success of democracy in russian : Use specific details. Then evaluate the relative success of democracy and capitalism in Russian after the end of the cold war

Outstanding preferred stock issued at a premium : Discuss the treatment, if any that should be given to each of the following items in computing earnings per share of common stock for financial statement reporting.

What about these data is beneficial and why : What strategies might be employed to overcome these threats to validity and limitations?

What is the rule for finding the next term : What are the next two terms - What is the rule for finding the next term? What is the common ratio?

Worse off than before the interest rate rise : Gabe and Gita both obey the two period Fisher model of consumption. Gabe earns $100 in the first period and $100 in the second period. Gita earns nothing in the first period and $210 in the second period. Suppose the interest rate increases. What wil..

Demand and supply work in the market : What are these mismatched trends (graphs of each are shown in the following web links) telling us about how demand and supply work in the market?

How natural systems of the human body function : How the video correlates with the following course competences: -How natural systems of the human body function (C1.1),

About the production and growth : Which of the following is human capital? One of the Ten Principles of Economics in Chapter 1 is that people face tradeoffs. The growth that arises from capital accumulation is not a free lunch. It requires that society. Other things the same, a count..

Problem regarding the opportunity cost of action : Recount and incident in your past which in retrospect required that you consider the opportunity cost of an action taken. State the circumstances the decision made and whether the outcome met with your satisfaction.

User Account

All Pages