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53: If people place greater 41 d. As calculated above, cyo = 1.581, and 001 = 2.958. Since 1‘, = 0.871, We
' ' the left—hand side of the lifetime budget 1. For utility smaller, sinCe [1 — a) W’ must be less than (1 —
consumed during the first period (since a ’
the individual is young, ' ' ' consumption when old must be higher. weight on future consumption than they did in the past, the lifecycle model would show a smaller value for the time preference
parameter a An decrease in a would lead people to save more of their wages
ding to a higher future capital stock. (yielding a higher level of investment), lea
Since the economy Wlll hava more capital to work within the future, output will also be higher than it would have been otherwise. capital” dees indeed depend on the “dynamic
” because the size of the capital stock in any period is fractiOn of their wage [am = (11:) W[ ), and that fraction then becomes the next
e capital stock evolves as a result of period’s capital stock (Km  N am ), th
changing wage rates. 4.05 it means that the slope of the indifference curve at 4.05. If the interest rate is equal to 10
' ~1.10. Therefore, the ...
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 Fall '07
 MBIEKOP
 Macroeconomics

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