ECON 2GG3 Study Guide - Final Guide: Intertemporal Consumption, Budget Constraint, Time Preference

• School: McMaster University
• Department: Economics
• Course: ECON 2GG3
• Professor: Robert Jefferson

Document Summary

P1 = p2 = : consumer chooses not to save/borrow, consumed in period 1 c1 = m1, consumed in period 2 c2 = m2, (c1,c2) = (m1,m2) = consumption bundle consumer spends nothing on consumption in period 1, c1 = 0 (cid:224) saves s1 = m1, int rate r", period 2 consumption level m2 saving + interest from period 1 = (1 + r)m1 income in period 2: m2 + (1+r)m1 c2 = m2 + (1+r)m1 consumer spends everything on consumption period 1, c2 = 0, most can borrow in period 1 against period 2 income of b1 = borrowed amount in p1. (1+r) = slope m2 +(1+r)m1 = intercept for of budget constraint (all terms in period 2 values (1 + r)c1 + c2 = (1 + r)m1 + m2: fv, equivalent tto pv, c1 + c2/(1 + r) = m1 + m2/(1+r, pv form of constraint (period 1 values)