ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Consider a simple three-period model where consumer's utility is a function of consumption 1 in three periods. Let the utility function be U(x, y, z) = ln x + Iny+- Inz where x, y, and are the consumption in period 1, 2 and 3, respectively. The consumer is also endowed with a budget B at the beginning of the period 1. Let "r" denote a market interest rate at which the consumer can choose to borrow or lend across three periods. The consumer's intertemporal budget constraint is that x and the present values of y and z are added up to B. Solve this intertemporal utility maximization problem and give an economic interpretation of your results. (Do not construct the Bordered Hessian matrix)
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Transcribed Image Text:Consider a simple three-period model where consumer's utility is a function of consumption 1 in three periods. Let the utility function be U(x, y, z) = ln x + Iny+- Inz where x, y, and are the consumption in period 1, 2 and 3, respectively. The consumer is also endowed with a budget B at the beginning of the period 1. Let "r" denote a market interest rate at which the consumer can choose to borrow or lend across three periods. The consumer's intertemporal budget constraint is that x and the present values of y and z are added up to B. Solve this intertemporal utility maximization problem and give an economic interpretation of your results. (Do not construct the Bordered Hessian matrix)
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