Problem 2: Aggregate Savings and Labour Supply with a Bequest Motive Consider the following consumer's problem:...

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Problem 2: Aggregate Savings and Labour Supply with a Bequest Motive Consider the following consumer's problem: max U = +1 ²+2 α+y+0+ç=1, 0<x<1, 0<y<1, 0 <0<1, 0<ç<1, 5+1 5+2 subject to Cy₁ + $1+1 yt St+1 = W₂ byt> = bys + byt Co²+1 +2+2=R₁+1(√2+1 +Z₁+1)> +1 where denotes a bequest/gift chosen by our consumer's parent in time tan received by our consumer in 1+1 after her parent has passed away; notice that this gift is a real financial asset earning interest. Now, because our consumer also loves her child, she, too, will make a bequest, +2, when she is old. Notice that this bequest enters into our consumer's recipe for lifetime happiness, which is one way of modeling the happiness/love our consumer receives from her child, in an economic sense. The Euler Equations for this problem are 1, Co+1 = +1 1. 5 = ₁¹5². St 2. Y 2+2 = B.15 Derive the LBC such that the control variables of the expression. [1a] [16] ror+1 +2 and a Derive predictions for y, S1, S₁, and by, and then provide the intuition for your individual labour supply prediction. [2] [EE1] [EE2] are on the left hand side [EE3] Problem 2: Aggregate Savings and Labour Supply with a Bequest Motive Consider the following consumer's problem: max U = +1 ²+2 α+y+0+ç=1, 0<x<1, 0<y<1, 0 <0<1, 0<ç<1, 5+1 5+2 subject to Cy₁ + $1+1 yt St+1 = W₂ byt> = bys + byt Co²+1 +2+2=R₁+1(√2+1 +Z₁+1)> +1 where denotes a bequest/gift chosen by our consumer's parent in time tan received by our consumer in 1+1 after her parent has passed away; notice that this gift is a real financial asset earning interest. Now, because our consumer also loves her child, she, too, will make a bequest, +2, when she is old. Notice that this bequest enters into our consumer's recipe for lifetime happiness, which is one way of modeling the happiness/love our consumer receives from her child, in an economic sense. The Euler Equations for this problem are 1, Co+1 = +1 1. 5 = ₁¹5². St 2. Y 2+2 = B.15 Derive the LBC such that the control variables of the expression. [1a] [16] ror+1 +2 and a Derive predictions for y, S1, S₁, and by, and then provide the intuition for your individual labour supply prediction. [2] [EE1] [EE2] are on the left hand side [EE3]

Answer rating: 100% (QA)

1 The Lagrangean for this problem is L 1 2 5 1Cys S1 Whyr 2by by 1 1 3Cor1 4 2R15 1 1 Cy 2 Taking th... View the full answer