Assuming that a consumer must pay a higher rate to borrow than to lend, the resulting efficient set has the following number of line segments

Question

Quizplus · Accepted Answer

The efficient set has three line segments because there are three possible combinations of borrowing and lending rates: (1) the consumer borrows at a higher rate than they lend, (2) the consumer borrows at the same rate as they lend, and (3) the consumer lends at a higher rate than they borrow.

Assuming That a Consumer Must Pay a Higher Rate to Borrow