Unformatted text preview: U ( c ) = ∞ s t =0 β t u ( c t ) , β ∈ (0 , 1) , where c t is a non-negative consumption level of a perishable good in period t . The individual receives income y t = 1 in even periods and y t = 0 in odd periods. His bank account initial balance is a = 0 and he can save and borrow at gross interest rate R = 1 /β . a) Find an optimal consumption plan of an individual. b) Plot a time path of a t and h t . Would it matter if the individual could not borrow but only save? 1...
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This note was uploaded on 11/10/2011 for the course ECONOMICS 601 taught by Professor Viktortsyrennikov during the Spring '11 term at Cornell.
- Spring '11