Question

Crusoe begins with an endowment A. Point R is the consumption combination he would choose at real interest rate r and point R´ is the consumption combination he would choose at real interest rate r´. Which of the following statements is true?

A Crusoe is a lender today
B Crusoe’s wealth has decreased because of the change in the real interest rate
C The marginal rate of intertemporal substitution at R is equal to r.
D The change in interest rate does not decrease Crusoe’s utility since he is free to keep his original endowment A if he so chooses
E None of these
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