Write down pollys intertemporal budget constraint

Assignment Help Microeconomics

Reference no: EM133662587

Assignment:

Polly Pocket will live only for two periods. In the first period, she will earn $50,000. In the second period, she will retire and live on her savings. Her utility is ??(??1, ??2) = (??1 + 100)(??2 + 10), where ??1 is what she consumes in period 1 and ??2 is what she consumes in period 2, and the marginal rate of substitution is -(??2 + 10)/(??1 + 100).

She can borrow and lend at the interest rate of 10%.

a. Write down Polly's intertemporal budget constraint and graph it below, with consumption in period 1 on the horizontal axis and consumption in period 2 on the vertical axis. Make sure to label the intercepts and endowment point.

b. What is her optimal amount of consumption in period 1 and in period 2?

c. Suppose the interest rate decreases. Graphically show the effect of this change to the budget constraint. Is Polly better or worse off than before, or uncertain? Briefly justify your answer.

Reference no: EM133662587

Questions Cloud

What could be a possible topic category : A public health class was given the assignment to create a project that researches and provides a potential solution. What could be a possible topic category?

Prepare the journal entry necessary to record a change : Prepare the journal entry necessary to record a change from the average-cost method to the FIFO method in 2023.

What is the desired outcome of your recommendation : What is desired outcome of your recommendation? For example, is it that client have better diet? Think short- and long-term goals and overall quality of life.

What internal controls were missing at crazy eddies : What internal controls were missing at Crazy Eddies relating to cash receipts, cash deposits,controls over bank accounts, cash disbursements, adding new vendor

Write down pollys intertemporal budget constraint : Write down Polly's intertemporal budget constraint and graph it below, with consumption in period 1 on the horizontal axis.

Compute working capital for both companies : Compute working capital for both companies for the most recent fiscal year. How would you interpret the working capital amounts you calculated for Target

Explain the use of advance directives versus physician order : Explain the use of advance directives versus Physician Order for Life Sustaining Treatment and their legal implications when providing care for elderly patients

What is the adjusted cash balance : complete the bank reconciliation to determine the adjusted cash balance per the facility's accounting records. What is the adjusted cash balance

What is the value of having such a discussion : What is the value of having such a discussion with a future spouse? Do you expect to share equally in financial decisions? If not, how do you plan to make

User Account

All Pages