a. Budget constraint:
C1*1.21+ C2= 1.21M1+ M2
C1,C2 are consumption in period 1 and 2.
M1,M2 are income in period 1 and 2.
b. From utility function, we know c1=c2
c1*1.21+c1= 1.21*2000+1100=
2.21c1= 2420+1100
C1*= 1592.76
That means he saves $2000-$1592.76= $407.23
1. Harvey Habit's utility function is U (C1, C2) = min {c1, c2}, where ci is...
1. Harvey Habit's utility function is U (C1, C2) = min {c1, c2}, where cı is his consumption of bread in period 1 and c2 is his consumption of bread in period 2. The price of bread is $1 per loaf in period 1. The interest rate is 21%. Harvey earns $2,000 in period 1 and he will earn $1,100 in period 2. (a) Write Harvey's budget constraint in terms of future value. (b) How much bread does Harvey consume...
Harvey Habit's utility function is still UCi.c2)-minfcical, where the arguments are the consumption in period 1 and consumption in period 2. The price of bread is period i . The interest rate is 21%. Harvey earns S2000 in period 1 and he will earn S1,100 in period 2 S1 per loaf in a) b) Write Harvey's budget constraint in terms of future value, assuming no inflation How much bread does Harvey consume i does he save? (the answer might not...
Question 3 John has the utility function is u(ci,C2) -c2, where c, is consumption today and c2 is consumption tomorrow. The price of consumption today is £1 and the price of consumption tomorrow is p2. John gets an income of m, today and m2 tomorrow. (a) John also faces the interest rate, r. Write out John's intertemporal budget constraint in present value and future forms. (4 marks) (b) It turns out that John earns an income of £15000 today and...
Doug lives for two periods. In the first period of his life he earns income Y1. The value of Y1 was determined by your student number. In the second period of his life, Doug is retired and does not earn any income. Doug’s decision is how much of his period one income should he save (S) in order to consume in period two. For every dollar that Doug saves in period one he has (1 + r) dollars available to...
(30 marks) Jane lives for two periods. In the first period of her life she earns income Y1. The value of Y1 was determined by your student number. In the second period of her life, Jane is retired and does not earn any income. Jane’s decision is how much of her period one income should she save (S) in order to consume in period two. For every dollar that Jane saves in period one she has (1 + r) dollars...
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Jane lives for two periods. In the first period of her life she earns income Y1. The value of Y1 was determined by your student number. In the second period of her life, Jane is retired and does not earn any income. Jane’s decision is how much of her period one income should she save (S) in order to consume in period two. For every dollar that Jane saves in period one she has (1 + r) dollars available to...
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Consider the following 2-period model U(C1,C2) = min{4C1,5C2} Ci + S = Y1-T C2 = Y2 - T2 + (1+r)S Where C: first period consumption C2: second period consumption S: first period saving Y] = 20 : first period income Ti = 5 : first period lump-sum tax Y2 = 50 : second period income T2 = 10 : second period lump-sum tax r= 0.05 : real interest rate Find the optimal saving, S*
can anyone help me with this question? 2. An review of intertemporal optimization: Suppose a consumer's utility function is given by U(c,2) where ci is consumption in period 1 and ca is consumption in perio You can assume that the price of consumption does not change between periods 1 and 2. The consumer has $100 at the beginning of period 1 and uses this money to fund consumption across the two periods (i.e. the consumer does not gain additional income...