In the two-period model, suppose a household's income in the first period is $30,000, income in the second period is $60,000, and the real interest rate is 30 percent.What is the household's maximum spending in the second period, if it decides to save the entire amount in the first period?
A)$40,000
B)$50,000
C)$80,000
D)$99,000

Question

Quizplus · Accepted Answer

If the household saves the entire $30,000 from the first period, it will grow by 30% due to the interest rate, resulting in $39,000. Adding the second period's income of $60,000, the maximum spending in the second period is $99,000.

In the Two-Period Model, Suppose a Household's Income in the First