In the Two-Period Model, Suppose a Household's Income in the First

question 10

Essay

In the two-period model, suppose a household's income in the first period is $60,000, income in the second period is $100,000, and the real interest rate is 50 percent.Draw a diagram showing the budget constraint.Now, suppose the household's income in the second period increased to $120,000.Draw the new budget constraint.For the budget constraints you have drawn, be sure to show the values of the intercepts on each axis.Show your work.

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