PS3&4 - ECON 3102 - 002 FALL 2010 Problem Set...

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Unformatted text preview: ECON 3102 - 002 FALL 2010 Problem Set 3&4 This problem set is due Monday, December 13st at the beginning of the class. The maximum score is 50 points. Feel free to contact me via e-mail if you have speci&c questions about the problem set 3. Q1. A consumers income in the current period is y = 100 and income in the future period is y = 120 . She pays lump-sum taxes t = 20 in the current period and t = 10 in the future period.the real interest rate r = 0 : 1 . a) Determine the consumers lifetime wealth. b) Suppose the current and future consumption are perfect complements for the consumer and she always wants to consume equal amounts in both periods. Determine what the consumers optimal current-period and future-period consumption are, and what optimal saving is. Is the consumer a borrower or a lender? c) Now suppose that y = 140 . Again, determine the optimal consumption in the current and future periods and optimal saving. Is the consumer a borrower or a lender? Explain the di/erences between parts (b) and (c)?di/erences between parts (b) and (c)?...
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This note was uploaded on 12/10/2010 for the course ECON 3101 taught by Professor Staff during the Spring '08 term at Minnesota.

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PS3&4 - ECON 3102 - 002 FALL 2010 Problem Set...

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