Question: lowing two-period consumption-savings problem without taxes. max u(c) + Bu(c) C1,a1,C2 s.t. a = ao+y - C1 C = y2 + (1+r)a a. Solve

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

lowing two-period consumption-savings problem without taxes. max u(c) + Bu(c) C1,a1,C2 s.t. a = ao+y - C1 C = y2 + (1+r)a a. Solve for C, C and a 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, y, 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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