How the solution solves to get [ C = ] as shown in the picture? Exercise 1

How the solution solves to get [ C = ] as shown in the picture?

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Exercise 1 1. The household's problem is: subject to: The Lagrangian is: C + 10 max C+11c C1,C2 C 1+ r* 10 L = G++1 [0 11 The first order conditions are: Q - T+ 1 C: C/ 1 10 211 C: C = T1 + C = -1/2 = Q2-T2 1+r* Q-12-C-C2] 1+r* 1+r* Substituting r* = 0.1 and combining these gives C = C2. Using the intertemporal budget constraint, Q = Q2 = 10, we can solve for C = C = C. 1+r* 10-T+ 10-T 1.1 (1+1) (1) Exercise 1 1. The household's problem is: subject to: The Lagrangian is: C + 10 max C+11c C1,C2 C 1+ r* 10 L = G++1 [0 11 The first order conditions are: Q - T+ 1 C: C/ 1 10 211 C: C = T1 + C = -1/2 = Q2-T2 1+r* Q-12-C-C2] 1+r* 1+r* Substituting r* = 0.1 and combining these gives C = C2. Using the intertemporal budget constraint, Q = Q2 = 10, we can solve for C = C = C. 1+r* 10-T+ 10-T 1.1 (1+1) (1)

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To solve for the optimal consumption levels C and C we need to use the firstorder condi... View the full answer