Consider a consumer that lives only for two periods. He works in period 1 (and gets income Y1) and moves up the corporate ladder in period 2 (and gets income Y1 < Y2). This consumer has the usual preferences over time: u(C1) + βu(C2) Assume once again that a consumer cannot borrow, but can borrow and immediately sell some MacGuffins, and in the next period, the consumer must buy back the MacGuffins to return to the lender. Assume that MacGuffin t r a d e s a t P1 > 0 in the first period and is expected to trade at P ̃2 in the second period. Write down the new budget constraint. Would a consumer borrow a MacGuffin? What is the condition on the P ̃2? Is P ̃2 a fair price of a MacGuffin? Could the consumer be better off with a MacGuffin?
Consider a consumer that lives only for two periods. He works in period 1 (and gets income Y1) and moves up
the corporate ladder in period 2 (and gets income Y1 < Y2).
This consumer has the usual preferences over time: u(C1) + βu(C2)
Assume once again that a consumer cannot borrow, but can borrow and immediately sell some MacGuffins, and in the next period, the consumer must buy back the MacGuffins to return to the lender. Assume that MacGuffin t r a d e s a t P1 > 0 in the first period and is expected to trade at P ̃2 in the second period. Write down the new budget constraint. Would a consumer borrow a MacGuffin? What is the condition on the P ̃2? Is P ̃2 a fair price of a MacGuffin? Could the consumer be better off
with a MacGuffin?
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