consumption (L11)

Question 1

what does keynesian c function imply

Answer 1

increase in current income increases consumption

Question 2

budget constraints with saving, consumption and income

Answer 2

c1=y1-s
c2=y2+(1+r)S

Question 3

lifetime BC

Answer 3

C1+C2/1+r= y1+y2/1+r

Question 4

how to maximise utility with lifetime BC

Answer 4

use indifference curves and find tangency with lifetime BC
when income is lower than consumption it shows borrowing and when consumption is lower than income it shows they’re saving

Question 5

decision to save or borrow depends on

Answer 5

interest rates
income path
preferences