4. The intertemporal budget constraint with three periods: Consider an economy that exists for three periods: period 1, period 2, and period 3. In each period, the government must satisfy the budget constraint B1= )B; + G - I 1. Write this budget constraint for each period. 2. What must be true about B4? 3. Using the result from part (b), solve the period 3 budget constraint for B, and substitute this back into the period 2 budget constraint. 4. Solve this new version of the period 2 budget constraint for B2 and substitute the result back into the period 1 budget constraint. 5. At this point, you should have the intertemporal budget constraint for the three-period economy. Interpret this equation.
4. The intertemporal budget constraint with three periods: Consider an economy that exists for three periods: period 1, period 2, and period 3. In each period, the government must satisfy the budget constraint B1= )B; + G - I 1. Write this budget constraint for each period. 2. What must be true about B4? 3. Using the result from part (b), solve the period 3 budget constraint for B, and substitute this back into the period 2 budget constraint. 4. Solve this new version of the period 2 budget constraint for B2 and substitute the result back into the period 1 budget constraint. 5. At this point, you should have the intertemporal budget constraint for the three-period economy. Interpret this equation.
Chapter1: Making Economics Decisions
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part 4 5......
![4. The intertemporal budget constraint with three periods: Consider an economy that exists for three periods: period 1, period 2, and period 3. In each period, the government must satisfy the budget constraint B = (
)B; + G - I
1. Write this budget constraint for each period.
2. What must be true about B4?
3. Using the result from part (b), solve the period 3 budget constraint for B, and substitute this back into the period 2 budget constraint.
4. Solve this new version of the period 2 budget constraint for B2 and substitute the result back into the period 1 budget constraint.
5. At this point, you should have the intertemporal budget constraint for the three-period economy. Interpret this equation.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4e4dfb2d-a79b-45cd-b758-b268a18e3a23%2F40761db9-000b-4ecc-bccb-85a92a5c333a%2Fqsz4d7j_processed.jpeg&w=3840&q=75)
Transcribed Image Text:4. The intertemporal budget constraint with three periods: Consider an economy that exists for three periods: period 1, period 2, and period 3. In each period, the government must satisfy the budget constraint B = (
)B; + G - I
1. Write this budget constraint for each period.
2. What must be true about B4?
3. Using the result from part (b), solve the period 3 budget constraint for B, and substitute this back into the period 2 budget constraint.
4. Solve this new version of the period 2 budget constraint for B2 and substitute the result back into the period 1 budget constraint.
5. At this point, you should have the intertemporal budget constraint for the three-period economy. Interpret this equation.
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