An individual with no investment opportunities has income of $15,000 in period 0 and income of $10,000 in period 1. If the interest rate is 7%, which of the following points is on the individual's consumption possibility line?
A) $3,000 in period 0 and $21,215 in period 1.
B) $4,000 in period 0 and $21,116 in period 1.
C) $10,000 in period 0 and $15,350 in period 1.
D) $16,000 in period 0 and $9,000 in period.
E) $18,800 in period 0 and $6,200 in period 1.

Question

Quizplus · Accepted Answer

The consumption possibility line is determined by the present value of income in both periods. The individual can consume $10,000 in period 0 and save $5,000, which will grow to $5,350 in period 1 at 7% interest, allowing for $15,350 in period 1.

An Individual with No Investment Opportunities Has Income of $15,000