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 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 r. Please answer the following questions based on the information displayed here. Choose the best option available.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question
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/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
r.
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) +ys
O d. The budget constrain in period t=2 is given by: C2= az(1+r) +ya
O e. The budget constrain in period t#2 is given by: C2+a a(1+r) +ya
Transcribed Image Text: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/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 r. 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) +ys O d. The budget constrain in period t=2 is given by: C2= az(1+r) +ya O e. The budget constrain in period t#2 is given by: C2+a a(1+r) +ya
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education