Ophelia Says, "If I Could Lend Money at the Rates

question 8

Essay

Ophelia says, "If I could lend money at the rates I must pay to borrow, I would.And if I could borrow money at the rates I receive when I lend, I would again.But forsooth, although I spend, I neither borrow nor lend." Contrary to common belief, Ophelia is entirely rational.Draw a diagram to show how Ophelia's remarks can be consistent with rational behavior and smooth convex preferences if she pays a different interest rate when she borrows than she gets when she lends.Explain what happens in words.

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Definitions:

World System Theory

A multidisciplinary, macro-scale approach to world history and social change that suggests there is a world economic system in which some countries benefit while others are exploited.

Peripheral Country

A term used in world-systems theory to describe countries that are less developed economically and are often exploited by more developed core countries through trade and labor.

Core Country

Nations that are economically developed with a high standard of living and significant influence on global economic and political decisions.

Enbridge Pipeline

A comprehensive network of pipelines operated by Enbridge, Inc., used to transport crude oil and natural gas across North America.