PS3&4 - ECON 3102 002 FALL 2010 Problem Set 3&4...

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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 consumer°s income in the current period is y = 100 and income in the future period is y 0 = 120 . She pays lump-sum taxes t = 20 in the current period and t 0 = 10 in the future period.the real interest rate r = 0 : 1 . a) Determine the consumer°s 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 consumer°s 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)?
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