Question 2: Consider a consumer who lives for two periods. The consumer's current- period income is y, future-period income is y' and y> y'. The consumer considers the current- period consumption (c) and future-period consumption (c') to be perfect complements. The consumer also likes to perfectly smooth consumption over time, i.e. c = c'. The consumer faces a borrowing rate (TB) that is higher than the lending rate (r). There is no limits on borrowing or lending. 1. Draw a diagram with c on horizontal axis and c' on vertical axis. Draw the consumer's budget constraint and indifference curves. Show the equilibrium. Is the consumer a borrower on a lender? Briefly explain. 2. The government introduces fully-funded social security. The consumer is required to contribute t to the consumer's social security account with the government. The gov- +(1 m) TL

Question 2: Consider a consumer who lives for two periods. The consumer's current- period income is y, future-period income is y' and y> y'. The consumer considers the current- period consumption (c) and future-period consumption (c') to be perfect complements. The consumer also likes to perfectly smooth consumption over time, i.e. c = c'. The consumer faces a borrowing rate (TB) that is higher than the lending rate (r). There is no limits on borrowing or lending. 1. Draw a diagram with c on horizontal axis and c' on vertical axis. Draw the consumer's budget constraint and indifference curves. Show the equilibrium. Is the consumer a borrower on a lender? Briefly explain. 2. The government introduces fully-funded social security. The consumer is required to contribute t to the consumer's social security account with the government. The gov- +(1 m) TL

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.3P

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