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Jack makes his consumption and saving decisions two months at a time His income this month is $1,000, and he knows that he will get a raise next month making his income $1050 The current interest

Jack makes his consumption and saving decisions two months at a time. His income this month is $1,000, and he knows that he will get a raise next month, making his income $1,050. The current interest rate (at which he is free to borrow or lend) is 5 percent. Denoting this month’s consumption by and next month’s by y, for each of the following utility functions state whether Jack would choose to borrow, lend, or do neither in the first month.

a) U(xy) = xy2MUxy2MUy= 2xy

b) U(xy) = x2yMUx= 2xyMUyx2

c) U(xy) = xyMUx=yMUy=x

May 02 2020 View more View Less

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