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PaulKet PaulKet
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6 years ago
Suppose Joe earns $1,000 in year 1 and $0 in year 2. Any amount he saves will earn interest at a rate of 0%. 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: Theory and Applications with Calculus

Microeconomics: Theory and Applications with Calculus


Edition: 4th
Author:
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The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
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unExpectedunExpected
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PaulKet Author
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5 years ago
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The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
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