Consider a consumer with preferences for two-period consumption of period 1 (de- noted as c) and...

 

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Consider a consumer with preferences for two-period consumption of period 1 (de- noted as c) and period 2 (denoted as c') given by the following intertemporal utility function as U (c, c) = n(c) + 3 ln(d). where ß denotes the time discount factor. Denote that the income in period 1 is y, and the income in period 2 is y. Assume there are lump-sum taxes in period 1 (denoted as t) and period 2 (denoted as t'). The consumer can lend or borrow resources through a certain interest rate of r. (a) (5pts) Write down the period-by-period budget constraints in both period 1 and period 2. (b) (6pts) Compute the optimal bundle of consumption (c, c) in period 1 and 2. Consider a consumer with preferences for two-period consumption of period 1 (de- noted as c) and period 2 (denoted as c') given by the following intertemporal utility function as U (c, c) = n(c) + 3 ln(d). where ß denotes the time discount factor. Denote that the income in period 1 is y, and the income in period 2 is y. Assume there are lump-sum taxes in period 1 (denoted as t) and period 2 (denoted as t'). The consumer can lend or borrow resources through a certain interest rate of r. (a) (5pts) Write down the period-by-period budget constraints in both period 1 and period 2. (b) (6pts) Compute the optimal bundle of consumption (c, c) in period 1 and 2.

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answer a The periodbyperiod budget constraint in period 1 can be written ... View the full answer