48.Consider the model of consumption according to Irving Fisher for two periods,

Question

48.Consider the model of consumption according to Irving Fisher for two periods, income in each period is Y1=20 000 and Y2=15 000, respectively, and the interest rate r is 50%. It therefore holds that:

a) Maximum possible consumption in the first period is in interval [25; 30)

b) Maximum possible consumption in the second period is in interval [25; 30)

c) Maximum possible consumption in the first period is in interval [30; 40)

d) Maximum possible consumption in the second period is in interval [30; 40)

e) Maximum possible consumption in the first period is in interval [40; 50)

Explanation / Answer

Consider the model of consumption according to Irving Fisher for two periods, income in each period is Y1=20 000 and Y2=15 000, respectively, and the interest rate r is 50%. It therefore holds that:-

c)Maximum possible consumption in the first period is in interval [30; 40)

Explanation- maximum possible consumption in period 1 is,C1=Y1+Y2/(1+r)

=20000+15000/(1+.5) As given all values.

=20000+10000

=30000.This value lies in the interval [30,40].

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