question archive Question 3 A consumer's income in the current period is y = 100, and income in the future period is y' = 120
Question 3 A consumer's income in the current period is y = 100, and income in the future period is y' = 120
Subject:EconomicsPrice: Bought3
Question 3 A consumer's income in the current period is y = 100, and income in the future period is y' = 120. He or she pays lump-sum taxes t = 20 in the current period and t' = 10 in the future period. The real interest rate is 0.1, or 10%, per period. His preference over current and future consumption is represented as u(c, c) = In(c) + In(c). (a) Determine the consumer's lifetime wealth. (b) Determine the consumer's optimal current-period and future-period consumption, optimal saving. Show in a diagram with the consumer's budget constraint and indifference curves. Is the consumer a lender or a borrower? (c) Now suppose that instead of y = 100, the consumer has y = 140. Again, determine optimal consumption in the current and future periods and optimal saving, and show this in a diagram. Is the consumer a lender or a borrower? (d) Explain the differences in your results between part (b) and (c). Note that MRCc,c = MUd' MUc Z 1/c 1/c '
