The tangency condition implies the Euler equation MU (c) = (1+r) MU (C++1). In class we...

  

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The tangency condition implies the Euler equation MU (c) = (1+r) MU (C++1). In class we considered an infinite horizon consumer with preferences u (). t=0 where is positive but less than 1. Instead of using u (c) = In (c), we assume that u (c) = 1 Ct - The parameter > 0 is called the intertemporal elasticity of substitution (IES). (a) Find an expression for the marginal utility of consumption in period t (i.e., find MU (ct)). (b) Derive the specific Euler equation implied by these preferences. The tangency condition implies the Euler equation MU (c) = (1+r) MU (C++1). In class we considered an infinite horizon consumer with preferences u (). t=0 where is positive but less than 1. Instead of using u (c) = In (c), we assume that u (c) = 1 Ct - The parameter > 0 is called the intertemporal elasticity of substitution (IES). (a) Find an expression for the marginal utility of consumption in period t (i.e., find MU (ct)). (b) Derive the specific Euler equation implied by these preferences.