ECON 2202 Lecture 11: Ch3. Two-period model

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31 May 2019
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Two-period model
Chapter 9 in the textbook
We don't have a three-period model.
The key difference between one-period and two-period is qualitative.
the model has the future.
Not only one more period, but one more dimension - time.
One period model only talks about today.
Where we deal with changes over time. We move from static model
to dynamic models.
A fully dynamic model can be complicated
-
We can summarize the gist of the full dynamic model by simply
limiting the number of periods.
-
Now consider a two-period model
many identical consumers who will exist for two period.
-
Many* = consumers don't have the power to manipulate the
price.
We will not consider explicitly the leisure-labor supply decision
-
Introduce saving decision
-
Consumer's budget constrains
Current period:
! " # $ % & '
-
y=current income
t=current taxes
c=consumption
s=savings for tomorrow
Future period
-
!($ #
)
* " +
,
" %(& '(
R= interest rate
!(& %(" '($ #
)
' " +
,
# $ !(
* " + &%(
*" + " '(
* " +
Lecture2
Thursday, October 4, 2018
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