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model of consumption/saving decisions, with house- hold lifetime utility given by U = In(c1) + Bln(c2) + B2ln(c3), %3D where B = 0.98. The household earns exogenous income y1 = 10 in the first period, y2 = 11 in the second period and y3 = 13 in the third period, and can borrow and save at the real interest rate r1 between the first and second periods and r2 between the second and third periods. Assume that there are no taxes. (a) Define an equilibrium. (b) Compute the interest rates of equilibrium. (c) Assume B = 0.99, compute the interest rates

model of consumption/saving decisions, with house- hold lifetime utility given by U = In(c1) + Bln(c2) + B2ln(c3), %3D where B = 0.98. The household earns exogenous income y1 = 10 in the first period, y2 = 11 in the second period and y3 = 13 in the third period, and can borrow and save at the real interest rate r1 between the first and second periods and r2 between the second and third periods. Assume that there are no taxes. (a) Define an equilibrium. (b) Compute the interest rates of equilibrium. (c) Assume B = 0.99, compute the interest rates

Advanced Engineering Mathematics
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
Section: Chapter Questions
Problem 1RQ
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Consider a single type of agent three-period model of consumption/saving decisions, with house- hold lifetime utility given by U = In(c1) + Bln(c2) + B2ln(c3), where B = 0.98. The household earns exogenous income y1 = 10 in the first period, y2 = 11 in the second period and y3 = 13 in the third period, and can borrow and save at the real interest rate r1 between the first and second periods and r2 between the second and third periods. Assume that there are no taxes. (a) Define an equilibrium. (b) Compute the interest rates of equilibrium. (c) Assume B = 0.99, compute the interest rates of equilibrium. (d) Assume y2 = 12, compute the interest rates of equilibrium.
Transcribed Image Text:Consider a single type of agent three-period model of consumption/saving decisions, with house- hold lifetime utility given by U = In(c1) + Bln(c2) + B2ln(c3), where B = 0.98. The household earns exogenous income y1 = 10 in the first period, y2 = 11 in the second period and y3 = 13 in the third period, and can borrow and save at the real interest rate r1 between the first and second periods and r2 between the second and third periods. Assume that there are no taxes. (a) Define an equilibrium. (b) Compute the interest rates of equilibrium. (c) Assume B = 0.99, compute the interest rates of equilibrium. (d) Assume y2 = 12, compute the interest rates of equilibrium.
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