Ali Inherits $10,000 from His Great-Great Aunt in 2008

question 6

Essay

Ali inherits $10,000 from his great-great aunt in 2008.His great-great aunt's will requires that Ali spend the money before December 31,2009.He has two spending options: He can either spend the amount in 2008 or in 2009.Suppose this is Ali's only source of income and the interest rate on loans or savings is 10 percent.
(a)How much could Ali spend in 2008 if he only consumes in 2008? How much could Ali spend in 2009 if he only consumes in 2009?
(b)What is the opportunity cost of consuming $1.00 in 2008 in terms of forgone consumption in 2009? Draw Ali's budget constraint and optimal consumption bundle,considering that the spending in 2008 is measured along the horizontal axis.
(c)Ali decides to spend $6,000 in 2008 and $4,400 in 2009.Show this optimal consumption bundle using a budget constraint and indifference curve diagram.

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Definitions:

Stern Discipline

Strict or severe methods of training or controlling behavior, often emphasizing punishment over reinforcement.

Misbehavior

Actions or conduct, especially of children, that is considered inappropriate or out of accord with societal norms or expectations.

Family Meetings

Planned gatherings of family members to discuss issues of importance to the family, make decisions, and improve communication and relationships.

Household Rules

Guidelines set by individuals or families to manage behavior and responsibilities within the home environment.