Suppose that in the first period,a woman works,earns income Y,and saves S of the income.In the second (and last)period,the woman consumes her savings plus whatever interest it earned (r is the interest rate).How much does the woman consume in the first period?

Question

Quizplus · Accepted Answer

In the first period, the woman saves S, so her consumption is Y - S. In the second period, her savings earn interest of rS, so her total savings become S + rS = S(1 + r). Thus, her total consumption in the second period is S(1 + r). Adding this to her consumption in the first period, we get:

Y - S + S(1 + r) = Y + rS

Therefore, the woman consumes Y + rS in total. Since we are only interested in the first period, the answer is Y - S.

Suppose That in the First Period,a Woman Works,earns Income Y,and