lowing two-period consumption-savings problem without taxes. max u(c) + Bu(c) C1,a1,C2 s.t. a = ao+y -...

  

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lowing two-period consumption-savings problem without taxes. max u(c₁) + Bu(c₂) C1,a1,C2 s.t. a₁ = ao+y₁ - C1 C₂ = y2 + (1+r)a₁ a. Solve for C₁, C₂ and a₁ b. How does 1 depend on y2? Interpret Y1 The household utility function is u(c) = log c. Furthermore assume that 0 < 3 < 1 and r > 0. Household takes as given income in period 1, y₁, and in period 2, y2. ao denotes initial wealth. Suppose a household solves the fol- c. Hows does 1 depend on ao and 3? Interpret Y1 lowing two-period consumption-savings problem without taxes. max u(c₁) + Bu(c₂) C1,a1,C2 s.t. a₁ = ao+y₁ - C1 C₂ = y2 + (1+r)a₁ a. Solve for C₁, C₂ and a₁ b. How does 1 depend on y2? Interpret Y1 The household utility function is u(c) = log c. Furthermore assume that 0 < 3 < 1 and r > 0. Household takes as given income in period 1, y₁, and in period 2, y2. ao denotes initial wealth. Suppose a household solves the fol- c. Hows does 1 depend on ao and 3? Interpret Y1

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62 Max C 0 C UC loge uc Buc 2 20 YC C42 10 2205 UG 0 05 1 Y ... View the full answer