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Unformatted text preview: University of Minnesota Department of Economics Econ 3102 001: Intermediate Macroeconomics Homework 3 This problem set (PS) is due on Wednesday, November 5 at the beginning of class. The maximum score is 102 points. Be sure to review the Syllabus about homework assignments and their grading. Feel free to contact me via e-mail if you have specific questions about the HW assignment. Note that some Exercises have several parts, and each part may conceal more than one task for you. Be sure to answer every question thoroughly for full credit! Question 1 (16 points) Consider the simple two-period model in chapter 8. Assume that the consumers income in the current period is given by 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 is 10% or 0 . 1. a) Determine the consumers lifetime wealth. b) Suppose that the current and future consumption are perfect complements for the consumer and that she always wants to have equal consumption in the current and future periods.Draw the consumers indifference curves.( Hint: Do you remember L-shaped indifference curves?) c)Determine what the consumers optimal current-period and future-period consumption are, and what optimal saving is, and show this in a diagram with the consumers budget constraint and indifference curves....
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