With log utility, the solution to the neoclassical consumption model is given implicitly by the two equations
Question:
With log utility, the solution to the neoclassical consumption model is given implicitly by the two equations on page 446, the Euler equation and the intertemporal budget constraint:
There, we solved these two equations for ctoday and cfuture in the special case where β = 1. This exercise considers the case where β differs from 1.
(a) Solve these two equations for ctoday and cfuture when β ± 1.
(b) Verify that the solution matches what we obtained in the text when β = 1.
(c) When β < 1, is ctoday higher or lower than when β = 1? Why?
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Question Posted: