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Suppose Joe earns $1,000 in Year 1 and $0 in Year 2. Any amount he saves will earn interest at a ...

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Suppose Joe earns $1,000 in Year 1 and $0 in Year 2. Any amount he saves will earn interest at a ...

Suppose Joe earns $1,000 in Year 1 and $0 in Year 2. Any amount he saves will earn interest at a rate of 10%. Draw Joe's budget line. (Hint: He can either consume all $1000 this year or consume nothing this year and have $1,100 next year.) Assuming convex indifference curves, show that an increase in the rate of interest can cause Joe's savings to either increase or decrease. Explain in terms of income and substitution effect.

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Microeconomics

Edition: 6^th

Author: Perloff

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And if you call, I will answer
And if you fall, I'll pick you up
And if you court this disaster
I'll point you home

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pirex Author

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6 years ago

Correct

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Thanks for your help!!

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You make an excellent tutor!

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