Describe how the optimal allocation of consumption over time is determined in this version of the...

 

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Describe how the optimal allocation of consumption over time is determined in this version of the DD model. For simplicity, you can assume no discounting (p = 1 in DD's notation). A good starting point is to initially examine how the feasible allocations change as & changes, which results in a trade-off resembling an intertemporal budget constraint. assume here and below that 1 < c*1 < c*2. Describe how the optimal allocation of consumption over time is determined in this version of the DD model. For simplicity, you can assume no discounting (p = 1 in DD's notation). A good starting point is to initially examine how the feasible allocations change as & changes, which results in a trade-off resembling an intertemporal budget constraint. assume here and below that 1 < c*1 < c*2.

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In the DD DiamondDybvig model with no discounting p 1 the optimal allocation of consumption over tim... View the full answer