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Consider the following 2-period model U(C1,C2) = min{4C1,5C2} Ci + S = Y1-T C2 = Y2...
The consumer's problem is max u(C1, C2) s.t. C1 +5 < y1 C2 < y2 +...
The consumer's problem is max u(C1, C2) s.t. C1 +5 < y1 C2 < y2 + (1+r)s C1 > 0, c220 Characterize the solution
3. Consider two consumers, A and B, who both maximize the same logarithmic utility function, U...
3. Consider two consumers, A and B, who both maximize the same logarithmic utility function, U = In 1 + In C2, and face the same real interest rate, r=.04: Consumer Y1-TI Y2-T2 A 20,000 10,400 10000 20, 800 What are the levels of C1, C2 and saving in period 1 for each? Suppose both face a borrowing constraint that limits borrowing to no more than 1000. Now describe the consumption choices for each. Explain. With the constraint in place,...
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 ci is his consumption of bread in period 1 and ca 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...
2. Consider a consumer with preferences over current and future consumption given by U(C1, C2) = (c1)1/2 (c2)1/2 where...
2. Consider a consumer with preferences over current and future consumption given by U(C1, C2) = (c1)1/2 (c2)1/2 where cı denotes the amount consumed in period 1 and c2 the amount consumed in period 2. Suppose that period 1 income expressed in units of good 1 is mı = 20000 and period 2 income expressed in units of good 2 is m2 = 30000. Suppose also that p1 = P2 = 1 and let r denote the interest rate. (a)...
3 Exercise 3 - Basic OLG model Consider the following two-period OLG model. People consume in...
3 Exercise 3 - Basic OLG model Consider the following two-period OLG model. People consume in both periods but work only in period two. The inter-temporal utility of the representative individual in the first period is where c and c2 are consumption and kı (which is given) and k2 are the stocks of capital in periods one and two. ns is work and is government expenditure in period two which is funded by a lump-sum tax in period two, T2....
2. Consider a consumer with preferences over current and future consumption given by U (C1, C2)...
2. Consider a consumer with preferences over current and future consumption given by U (C1, C2) = (c1)1/(c2)1/2 where c1 denotes the amount consumed in period 1 and ch the amount consumed in period 2. Suppose that period 1 income expressed in units of good 1 is m1 = 20000 and period 2 income expressed in units of good 2 is m2 = 30000. Suppose also that P1 = P2 = 1 and let r denote the interest rate. (a)...
3. Consider the two period setup for the household . Suppose the government initially raises revenue...
3. Consider the two period setup for the household . Suppose the government initially raises revenue only by taxing interest income. This means the individual's budget constraint is: C2 1(1 T)r where T is the tax rate. The government's revenue is zero in period 1 and TrĢ 0) where C is the individual's choice of Cı given the tax rate. Now suppose the government eliminates the taxation of interest income and instead institutes lump-sum taxes of amounts Tı and T2...
Consider a consumer with preferences over current and future consumption given by U (c1, c2) =...
Consider a consumer with preferences over current and future consumption given by U (c1, c2) = c1c2 where c1 denotes the amount consumed in period 1 and c2 the amount consumed in period 2. Suppose that period 1 income expressed in units of good 1 is m1 = 20000 and period 2 income expressed in units of good 2 is m2 = 30000. Suppose also that p1 = p2 = 1 and let r denote the interest rate. 1. Find...
Jane lives for two periods. In the first period of her life she earns income Y1....
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...
Doug lives for two periods. In the first period of his life he earns income Y1....
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...
The consumer's problem is max u(C1, C2) s.t. C1 +5 < y1 C2 < y2 + (1+r)s C1 > 0, c220 Characterize the solution
3. Consider two consumers, A and B, who both maximize the same logarithmic utility function, U = In 1 + In C2, and face the same real interest rate, r=.04: Consumer Y1-TI Y2-T2 A 20,000 10,400 10000 20, 800 What are the levels of C1, C2 and saving in period 1 for each? Suppose both face a borrowing constraint that limits borrowing to no more than 1000. Now describe the consumption choices for each. Explain. With the constraint in place,...
1. Harvey Habit's utility function is U (C1, C2) = min {c1, c2}, where ci is his consumption of bread in period 1 and ca 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...
2. Consider a consumer with preferences over current and future consumption given by U(C1, C2) = (c1)1/2 (c2)1/2 where cı denotes the amount consumed in period 1 and c2 the amount consumed in period 2. Suppose that period 1 income expressed in units of good 1 is mı = 20000 and period 2 income expressed in units of good 2 is m2 = 30000. Suppose also that p1 = P2 = 1 and let r denote the interest rate. (a)...
3 Exercise 3 - Basic OLG model Consider the following two-period OLG model. People consume in both periods but work only in period two. The inter-temporal utility of the representative individual in the first period is where c and c2 are consumption and kı (which is given) and k2 are the stocks of capital in periods one and two. ns is work and is government expenditure in period two which is funded by a lump-sum tax in period two, T2....
2. Consider a consumer with preferences over current and future consumption given by U (C1, C2) = (c1)1/(c2)1/2 where c1 denotes the amount consumed in period 1 and ch the amount consumed in period 2. Suppose that period 1 income expressed in units of good 1 is m1 = 20000 and period 2 income expressed in units of good 2 is m2 = 30000. Suppose also that P1 = P2 = 1 and let r denote the interest rate. (a)...
3. Consider the two period setup for the household . Suppose the government initially raises revenue only by taxing interest income. This means the individual's budget constraint is: C2 1(1 T)r where T is the tax rate. The government's revenue is zero in period 1 and TrĢ 0) where C is the individual's choice of Cı given the tax rate. Now suppose the government eliminates the taxation of interest income and instead institutes lump-sum taxes of amounts Tı and T2...
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