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,-1=( )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 B,-1=( )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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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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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