Consider an alternative model in which there is a single household in the economy (sometimes described...

 

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Consider an alternative model in which there is a single household in the economy (sometimes described as a representative agent) that chooses consumption, work effort, and capital to maximize utility: Subject to budget constraint: B₁u(C++1, M2+i) i=0 f(ne+kt+i) + (1-8)kt+i- Ct+ikt+i+1 = 0 a) Write up the household's first order conditions to their intertemporal maximization problem. b) Compare the household's optimal choice of consumption, work effort, and capital to those derived in question 1b. Consider an alternative model in which there is a single household in the economy (sometimes described as a representative agent) that chooses consumption, work effort, and capital to maximize utility: Subject to budget constraint: B₁u(C++1, M2+i) i=0 f(ne+kt+i) + (1-8)kt+i- Ct+ikt+i+1 = 0 a) Write up the household's first order conditions to their intertemporal maximization problem. b) Compare the household's optimal choice of consumption, work effort, and capital to those derived in question 1b.

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ANSWER a The households intertemporal maximization problem can be written as max t uct lt kt subject ... View the full answer