Ophelia has income of M₁100 in period 1 and M₂20 in period 2. If she chooses to, she=can either save or borrow at an interest rate of i 0.05 (so an interest rate of 5% per period). Therate of price inflation between periods is π = 0 (so a 0% inflation rate) and price of a unit ofconsumption in each period is normalized to 1 (so P₁ = P2 = 1).=O-Suppose that Ophelia's utility function over intertemporal consumption bundles isU (C₁, C₂) = ln c₁ + ln c₂. (Notice that this utility function implies that: (i) Ophelia hasdiminishing marginal utility of consumption in each period and (ii) Ophelia does not discount thefuture at all relative to the present.) Which of the following statements accurately describes thecomposition of Ophelia's optimal intertemporal consumption bundle?Ophelia consumes in both periods, but consumes slightly more in period 1 than in period 2.Ophelia consumes in both periods, but consumes slightly more in period 2 than in period 1.Ophelia shifts all of her consumption to period 2, and therefore consumes nothing in period 1.Ophelia shifts all of her consumption to period 1, and therefore consumes nothing in period 2.

The intertemporal consumption bundle refers to the bundle of goods of a person when he has a choice…

Ophelia has income of M₁ = 100 in period 1 and M₂ = 20 in period 2. If she chooses to, she = 0.05 (so an interest rate of 5% per period). The an either save or borrow at an interest rate of i = ate of price inflation between periods is π = 0 (so a 0% inflation rate) and price of a unit of onsumption in each period is normalized to 1 (so p₁ = P2 = 1). uppose that Ophelia's utility function over intertemporal consumption bundles is √(C₁, C₂) = ln c₁ + ln c₂. (Notice that this utility function implies that: (i) Ophelia has iminishing marginal utility of consumption in each period and (ii) Ophelia does not discount the uture at all relative to the present.) Which of the following statements accurately describes the omposition of Ophelia's optimal intertemporal consumption bundle? O Ophelia consumes in both periods, but consumes slightly more in period 1 than in period 2. O Ophelia consumes in both periods, but consumes slightly more in period 2 than in period 1. O Ophelia shifts all of her consumption to period 2, and therefore consumes nothing in period 1. O Ophelia shifts all of her consumption to period 1, and therefore consumes nothing in period 2.

Ophelia has income of M₁ = 100 in period 1 and M₂ = 20 in period 2. If she chooses to, she = 0.05 (so an interest rate of 5% per period). The an either save or borrow at an interest rate of i = ate of price inflation between periods is π = 0 (so a 0% inflation rate) and price of a unit of onsumption in each period is normalized to 1 (so p₁ = P2 = 1). uppose that Ophelia's utility function over intertemporal consumption bundles is √(C₁, C₂) = ln c₁ + ln c₂. (Notice that this utility function implies that: (i) Ophelia has iminishing marginal utility of consumption in each period and (ii) Ophelia does not discount the uture at all relative to the present.) Which of the following statements accurately describes the omposition of Ophelia's optimal intertemporal consumption bundle? O Ophelia consumes in both periods, but consumes slightly more in period 1 than in period 2. O Ophelia consumes in both periods, but consumes slightly more in period 2 than in period 1. O Ophelia shifts all of her consumption to period 2, and therefore consumes nothing in period 1. O Ophelia shifts all of her consumption to period 1, and therefore consumes nothing in period 2.

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter17: Inflation

Section: Chapter Questions

Problem 20SQ

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