Samantha Smoothie's Utility Function Is U(c₁, C₂) = C₁c₂, Where

question 2

Multiple Choice

Samantha Smoothie's utility function is U(c₁, c₂) = c₁c₂, where c₁ is her consumption in period 1 and c₂ is her consumption in period 2. She earns $200 in period 1 and $220 in period 2. Samantha can borrow and lend at an interest rate of 10% and there is no inflation. The number of dollars that Samantha spends in the second period must be

• A) more than 200 but less than 220.
• B) exactly 220.
• C) more than 220.
• D) exactly 200.
• E) less than 200.

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Definitions:

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An American economist and Nobel laureate who was a leading proponent of free-market capitalism.

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