Harvey Habit Has a Utility Function U(c₁, C₂) = Min{c₁

question 28

Multiple Choice

Harvey Habit has a utility function U(c₁, c₂) = min{c₁, c₂}, where c₁ and c₂ are his consumption in periods 1 and 2 respectively. Harvey earns $189 in period 1 and he will earn $63 in period 2. Harvey can borrow or lend at an interest rate of 10%. There is no inflation.

• A) Harvey will save $60.
• B) Harvey will borrow $60.
• C) Harvey will neither borrow nor lend.
• D) Harvey will save $124.
• E) None of the above.

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