Will Wisp Will Live for Exactly Two Periods

question 6

Multiple Choice

Will Wisp will live for exactly two periods.His utility function is U(c₁, c₂) = c₁c₂, where c₁ is consumption in period 1 and c₂ is consumption in period 2.He will have no income in period 2.His income in period 1 is $80,000.If the interest rate rises from 10 to 12%:

• A)his savings will increase by 2% and his consumption in period 2 will increase.
• B)his savings will not change but his consumption in period 2 will increase by $800.
• C)his consumption in both periods will increase.
• D)his consumption in both periods will decrease.
• E)his consumption in period 1 will decrease by 12% and his consumption in period 2 will increase.

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