Patience Has a Utility Function U(c₁, C₂)=c^1/2₁

question 7

Multiple Choice

Patience has a utility function U(c₁, c₂) =c^1/2₁ +.080c^1/2₂, where c₁ is her consumption in period 1 and c₂ is her consumption in period 2.Her income in period 1 is 3 times as large as her income in period 2.At what interest rate will she choose to consume the same amount in period 1 as in period 2?

• A)0.75
• B)0.13
• C)0.25
• D)0
• E)0.38

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