1. Consider a deterministic DGE model where time lasts for two periods. = Σt=0Btu(ct); The representative consumer has the utility function U₂ faces the budget constraint c₁ + a₁ = y₂ + (1+r)a₁_, for t = 0,1; and has an initial assets position given by a-1 < 0. a) Specify the maximization problem of the representative consumer and provide its economic interpretation. 1 b) Assume (i) +r analytically the optimal consumption and assets holding plan and provide an economic interpretation. = ß and (ii) y₁ = y for t=0,1, with y>0. Derive c) Explain how your result in part (b) changes if the initial asset position is positive.

1. Consider a deterministic DGE model where time lasts for two periods. = Σt=0Btu(ct); The representative consumer has the utility function U₂ faces the budget constraint c₁ + a₁ = y₂ + (1+r)a₁_, for t = 0,1; and has an initial assets position given by a-1 < 0. a) Specify the maximization problem of the representative consumer and provide its economic interpretation. 1 b) Assume (i) +r analytically the optimal consumption and assets holding plan and provide an economic interpretation. = ß and (ii) y₁ = y for t=0,1, with y>0. Derive c) Explain how your result in part (b) changes if the initial asset position is positive.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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