WEEK 7: EXERCISE 12, chap 13 – Suppose that a household in a two-period model

Suppose that a household in a two-period model has income of $30,000 in period 1 and $25,000 in period 2, and the interest rate is 75 percent. Assume that the price of the good is $1 in both periods. Suppose that the household decides to consume 26,000 in period 1 and $32,000 in period 2. Now suppose that interest rate falls to 50 percent , and the household decides not to borrow or lend at all. Is the household better off or worse off with the higher interest rate?