PlsAnswer the last three question fully with your own knowledge Consider the following two-period consumption-saving model:Max C (BC,)},C1,C2subject to the following constraintsY1 = C1+S,Y2 = C2 – (1+r)S.1. Solve for the intertemporal budget constraint2. Draw the budget constraint (in a graph) with Y1 = 140, Y2 = 70, and r=0.25. Be sure tolabel the maximum values of C, and C2 on the y-axis and x-axis.3. Suppose that ß = 0.8, solve for the optimal values of consumption, C and C5.%3D4. Compare your consumption function for period 1 to a consumption function suggested byJohn Maynard Keynes (the so-called Keynesian consumption function). Are they different?5. When r does down, how does C1 change? Does it increase or decrease? Show this mathe-matically.6. Compute the marginal propensity to consume in period 1. Does this fall in the range sug-gested by Keynes?

The consumption function is an equation that shows how a household's consumption levels change as…

Answered: Consider the following two-period…

Consider the following two-period consumption-saving model: Max C (BC2)}, C1,C2 subject to the following constraints Y1 =C1+S, Y2 = C2 – (1+r)S. %3D -

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

PlsAnswer the last three question fully with your own knowledge

Consider the following two-period consumption-saving model:
Max C (BC,)},
C1,C2
subject to the following constraints
Y1 = C1+S,
Y2 = C2 – (1+r)S.
1. Solve for the intertemporal budget constraint
2. Draw the budget constraint (in a graph) with Y1 = 140, Y2 = 70, and r=0.25. Be sure to
label the maximum values of C, and C2 on the y-axis and x-axis.
3. Suppose that ß = 0.8, solve for the optimal values of consumption, C and C5.
%3D
4. Compare your consumption function for period 1 to a consumption function suggested by
John Maynard Keynes (the so-called Keynesian consumption function). Are they different?
5. When r does down, how does C1 change? Does it increase or decrease? Show this mathe-
matically.
6. Compute the marginal propensity to consume in period 1. Does this fall in the range sug-
gested by Keynes?

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