Draw a two period budget line where the borrow/lending rate of interest,r,allows consumers to choose consumption in each of the two periods,C₁ and C₂ given their anticipated income on two periods,Y₁ and Y_2.The one point on the budget line not affected by the interest rate is B) the horizontal intercept. C) the vertical intercept. D) Y₂

Question

Quizplus · Accepted Answer

The one point on the budget line not affected by the interest rate is the vertical intercept, which represents the maximum amount that can be consumed in period 1 (C₁) if no borrowing or saving is done. The other points on the budget line are determined by the interest rate and the anticipated income in both periods. Therefore, the best choice is A.

Draw a Two Period Budget Line Where the Borrow/lending Rate