Five Minute Exercises > Two-Period Intertemporal Choice with Perfect Complements Preferences

Problem

Given:

A household wants to have exactly 2 units of consumption in period 0 for each unit in period 1
The household can borrow or save at an interest rate of 100% (to keep the calculation simple)
The household's income is $100K in period 0 and $100K in period 1.

Determine:

The amount the household borrows or saves in period 0.

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Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 11/04/2013