1. Suppose you wanted to study intertemporal food purchases. You have annual data on food purchases. Would it be valid to assume that food in one year and food in another year are perfect substitutes? Why or why not?
2. A consumer, who is initially a lender, remains a lender even after a decline in interest rates. Is this consumer better o or worse o after the change in interest rates? If the consumer becomes a borrower after the change is he better or worse off?
3. What is the present value of $100 one year from now if the interest rate is 10 percent?
What if the interest rate is 5 percent?