ECON 4710 Chapter : Hw3Ans
Document Summary
The real: (40 points) consider two consumers, a and b. A and b both want perfect consumption smoothing (c = cf) and both have no current wealth. However, the two consumers have different income streams. Pvlra = 100 + 121/(1 + . 1) = 210. Since both consumers face the same real interest rate, both budget constraints have the same slopes. Since both consumers have the same pvlr, both budget constraints have the same horizontal intercept. So the two budget constraints are the same. cf. Find consumer a"s optimal lifetime consumption plan, (ca, cf. A, we have cf ca = -1. 1ca + 231 ca = 231/2. 1 = 110. Using the perfect consumption smoothing assumption, we can substitute ca = cf budget constraint and solve for ca: Consumer a is a current borrower because his current consumption is greater than his current consumption plus asset: y +a c = 100 110 = 10.
