A decision maker allocates an endowment of W > 0 dollars across two periodst = 1, 2. He discounts the future by β ∈ (0, 1) while facing a gross interest rateof R > 1. His utility is the same as studied in class. Solve for the intertemporalchoice problem. Show that the optimal consumption is decreasing over time ifβR < 1, constant over time if βR = 1, and increasing over time if βR > 1.

A decision maker allocates an endowment of W > 0 dollars across two periodst = 1, 2. He discounts the future by β ∈ (0, 1) while facing a gross interest rateof R > 1. His utility is the same as studied in class. Solve for the intertemporalchoice problem. Show that the optimal consumption is decreasing over time ifβR < 1, constant over time if βR = 1, and increasing over time if βR > 1.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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