Mr.O.B.Kandle has a utility function c₁c₂, where c₁ is his consumption in period 1 and c₂ is his consumption in period 2.He will have no income in period 2.If he had an income of $80,000 in period 1 and the interest rate increased from 10 to 19%, A)his savings would increase by 9% and his consumption in period 2 would also increase. B)his savings would not change but his consumption in period 2 would increase by $3,600. C)his consumption in both periods would increase. D)his consumption in both periods would decrease. E)his consumption in period 1 would decrease by 19% and his consumption in period 2 would also decrease.

Question

Quizplus · Accepted Answer

Since the interest rate has increased, Mr. O.B. Kandle's saving will not change as his utility function depends only on consumption in both periods. However, with an income of $80,000 in period 1 and an interest rate of 19%, he will save $15,200. Therefore, his consumption in period 2 would increase by $3,600 ($15,200 - $11,600) because he would have more money to spend in that period.

MrOBKandle Has a Utility Function C1c2, Where C1 Is His

MrOBKandle Has a Utility Function C₁c₂, Where C₁ Is His