Choice and Cost Benefit Analysis > Two-Period Intertemporal Choice

Working and Retirement

Suppose Arlene is concerned about consumption in two periods.  In period 0, she is working and expects to earn $100,000.  In period 1, she will be retired and expects to have a $30,000 pension.  She would like to have exactly the same consumption in each period and can borrow or lend at an interest rate of 10%. 

  1. Please determine Arlene's equilibrium consumption in both periods.
  2. Calculate the amount she borrows or lends in period 0.
Solution
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Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 11/08/2009