question archive Let r denote the interest rate, Ct denote consumption in period t, and Yt denote labor income (exogenously given) for t=0, 1,2,…,T for a consumer
Let r denote the interest rate, Ct denote consumption in period t, and Yt denote labor income (exogenously given) for t=0, 1,2,…,T for a consumer
Subject:EconomicsPrice: Bought3
Let r denote the interest rate, Ct denote consumption in period t, and Yt denote labor income (exogenously given) for t=0, 1,2,…,T for a consumer. The consumer is assumed to have the utility function of the quasi-hyperbolic discounting model: ????(?????, ?????, ? , ????? ) = ????(?????) + ????????????(?????) + ? + ?????????????(????? ) Assume that an individual with this utility function can make the complete commitments for all future periods: at ???? = 0, the “present self” makes decisions as the dictator for all “future selves” for entire consumption for ???? ≥ 0 by maximizing his utility under the budget constraint at ???? = 0. You do NOT need to explain your answers.
A) Draw a figure to describe the utility maximization under the budget constraint for t=0 and t=1 using a budget constraint line and three Fisher’s indifference curves. Put the description of the label on each of the X and Y axes.
B) Write down the budget constraint as an equation.
C) Write down the Euler condition for t=0 and t=1. D) Write down the Euler condition for t=1 and t=2.
