A consumer can borrow or lend freely at the market interest rate of r=100% per period. [If it's helpful, think of the "period" as being a few decades.] Her utility function is: U = In(ct) + (1/2)In(Ct+1) She earns Y₁=100 and Yt+1=100. But in period t+1 she will have to pay a tax of Tt+1=40. If she's maximizing her utility function subject to the IBC, how much will she consume in period t?
A consumer can borrow or lend freely at the market interest rate of r=100% per period. [If it's helpful, think of the "period" as being a few decades.] Her utility function is: U = In(ct) + (1/2)In(Ct+1) She earns Y₁=100 and Yt+1=100. But in period t+1 she will have to pay a tax of Tt+1=40. If she's maximizing her utility function subject to the IBC, how much will she consume in period t?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![A consumer can borrow or lend freely at the market interest rate of r=100% per period. [If it's helpful, think of the "period" as being a few decades.] Her utility function is:
U = In(ct) + (1/2)In(ct+1)
She earns Yt=100 and Yt+1=100. But in period t+1 she will have to pay a tax of Tt+1=40.
If she's maximizing her utility function subject to the IBC, how much will she consume in period t?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F60a66c50-9b46-4114-ad56-77d38ee30910%2Fe9057bd6-d8de-412e-b10f-a7cdb8a8904e%2Fjla1xh_processed.png&w=3840&q=75)
Transcribed Image Text:A consumer can borrow or lend freely at the market interest rate of r=100% per period. [If it's helpful, think of the "period" as being a few decades.] Her utility function is:
U = In(ct) + (1/2)In(ct+1)
She earns Yt=100 and Yt+1=100. But in period t+1 she will have to pay a tax of Tt+1=40.
If she's maximizing her utility function subject to the IBC, how much will she consume in period t?
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