A widely used utility function in the economics literature is the constant rate of risk aversion utility function. It is given by:u(c) = c*(1-n)(1-n)Assume that an agent lives for three periods (t-0,1,2) and discounts future utility at rate B (per period). The agent is born with asset level a, and his/herlabour market income is yo and y, for periods O and 1 respectively, the agent retire in the last period (no labour income). The interest rate in this economy isr.Please answer the following questions based on the information displayed here. Choose the best option available.Select one:O a. The budget constrain in period t=2 is given by:C2+ ay az(1+r)O b. The budget constrain in period t=2 is given by: Cam a2(1+r)O C. The budget constrain in period t=2 is given by: u(c2)+ a a;(1+r) +ysO d. The budget constrain in period t=2 is given by: C2= az(1+r) +yaO e. The budget constrain in period t#2 is given by: C2+a a(1+r) +ya

u(c)= c1-n(1-n) t=0,1,2 As per the given information, consumer has no income in period 2.

Answered: A widely used utility function in the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A widely used utility function in the economics literature is the constant rate of risk aversion utility function. It is given by: utc) = c*(1-n) (1-n) Assume that an agent lives tor three periods (t-0,1,2) and discounts future utity at rate B (per period), The agent is born with asset level ag and his/her labour market income is yo and y, for periods O and 1 respectively, the agent retire in the last period (no labour income). The interest rate in this economy is Please answer the following questions based on the information displayed here. Choose the best option avallable. Select one: O a. The budget constrain in period te2 is given by: C2 + ay = az(1+r) O b. The budget constrain in period te2 is given by: c2= az{1+1) O G. The budget constrain in period t=2 is glven by: ute, )+ ag = a;(1+1) +ya d. The budget constrain in period t=2 is given by: C2= az(1+r) +y3 e. The budget constrain in period te2 is given by: c, + ag = az(1+) +ya
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