1. Suppose that the representative consumer has a utility function defined over 11 consumption over two dates of the form U(C₁, C₂) = C₁zc₂2. The general form of the slope of the indifference curve for the representative consumer is - C₂/C₁. Moreover, remember that c₁ = Y₁ - S and C₂ = y₂ + s(1 + r). Assume that the representative consumer has an endowment of consumption goods in the two periods of y₁ = 20 and y₂ = 10. Assuming an interest rate r = 1, compute the equilibrium allocation and the implied savings. b. Suppose that, because of an attack of pessimism, the representative consumer assumes that future income will drop so that y₂ = 0. What happens to the savings s in

1. Suppose that the representative consumer has a utility function defined over 11 consumption over two dates of the form U(C₁, C₂) = C₁zc₂2. The general form of the slope of the indifference curve for the representative consumer is - C₂/C₁. Moreover, remember that c₁ = Y₁ - S and C₂ = y₂ + s(1 + r). Assume that the representative consumer has an endowment of consumption goods in the two periods of y₁ = 20 and y₂ = 10. Assuming an interest rate r = 1, compute the equilibrium allocation and the implied savings. b. Suppose that, because of an attack of pessimism, the representative consumer assumes that future income will drop so that y₂ = 0. What happens to the savings s in

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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