ECO 301 (ECO 301)

1. In the two-period utility maximization model the opportunity cost of one unit of C1 is 2. A rise in the real interest rate r 3. Suppose an individual has a fixed amount of wealth to allocate between consumption in two periods (C1 and C2). Any funds not spent in period 1 will earn interest (at the rate r), which will increase purchasing power in period 2. Consider four possible reactions to an increase in r: 4. The annual rental rate for a ma...