Consider an intertemporal utility maximizer with decreasing

Reference no: EM13727914

Consider an intertemporal utility maximizer with decreasing marginal utility. Suppose also that her preferences dictate that she maximizes at the consumption point of no borrowing or lending. She is neither a borrower, nor a lender. Explain whether this person's utility will increase or decrease if the interest rate increases. Now explain her utility change if the interest rate decreases. Refer to the budget line and indifference curve diagram to explain the answer. Discuss the dynamic process of moving from the first consumption bundle (no borrowing or lending) to the final bundle. What causes the person to eventually stop adjusting her consumption bundle, after the initial change in the interest rate?

Reference no: EM13727914

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