Consider a consumer who can borrow or lend freely at an interest rate of 100% per period of time (think of the period as being, say, 30 years, a bit like with a mortgage). So r= 1.0, or 100%. The consumer's two-period utility function is: U=In(ct) + (1/2)In(Ct+1) The consumer earn Y=100 each period, so Y₁-100 and Yt+1 also equals 100. If this consumer is behaving optimally, trying to maximize her lifetime utility subject to the IBC, what's her consumption in period t?

Consider a consumer who can borrow or lend freely at an interest rate of 100% per period of time (think of the period as being, say, 30 years, a bit like with a mortgage). So r= 1.0, or 100%. The consumer's two-period utility function is: U=In(ct) + (1/2)In(Ct+1) The consumer earn Y=100 each period, so Y₁-100 and Yt+1 also equals 100. If this consumer is behaving optimally, trying to maximize her lifetime utility subject to the IBC, what's her consumption in period t?

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter29: Interest, Rent, And Profit

Section: Chapter Questions

Problem 1QP

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