Consider a small open economy that takes the world interest rate as given. If it is assumed that a single final good is produced in periods A and B, which is income paid directly to final consumers. There is no uncertainty and no frictions or market imperfections. Let the representative individual maximize utility in periods A and B subject to inter- temporal budget constraints, fixed. 1, Find the derivative of the utility function with respect to consumption in periods A and B. 2, Show the second-order conditions of the utility. 3, Get the Euler Equation and explain the intuition behind the path of consumer's consumption in periods A and B.
Consider a small open economy that takes the world interest rate as given. If it is assumed that a single final good is produced in periods A and B, which is income paid directly to final consumers. There is no uncertainty and no frictions or market imperfections. Let the representative individual maximize utility in periods A and B subject to inter- temporal budget constraints, fixed. 1, Find the derivative of the utility function with respect to consumption in periods A and B. 2, Show the second-order conditions of the utility. 3, Get the Euler Equation and explain the intuition behind the path of consumer's consumption in periods A and B.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Consider a small open economy that takes the world interest rate as given. If it is assumed that a single final good is produced in periods A and B, which is income paid directly to final consumers. There is no uncertainty and no frictions or market imperfections.
Let the representative individual maximize utility in periods A and B subject to inter- temporal budget constraints, fixed.
1, Find the derivative of the utility function with respect to consumption in periods A and B.
2, Show the second-order conditions of the utility.
3, Get the Euler Equation and explain the intuition behind the path of consumer's consumption in periods A and B.
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