208-2011-L2

208-2011-L2 - Econ 208 Marek Kapicka Lecture 2 Basic...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Econ 208 Marek Kapicka Lecture 2 Basic Intertemporal Model Where are we? n 1) A Basic Intertemporal Model n A) Consumer Optimization n B) Market Clearing n C) Adding capital stock n D) Welfare Theorems n E) Infinite horizon 1. A Basic Intertemporal Model n First period = current period n Second period = future period n To simplify, abstract from labor/leisure decision n Our interest: borrowing and saving by consumers A Basic Intertemporal Model n Preferences of consumers n U ( c ) is increasing, differentiable and concave n Discount factor <1 measures how much future utility matters relative to current utility ) ( ) ( 2 1 c U c U + A Basic Intertemporal Model n Budget Constraints: n y 1, y 2 are exogenous incomes n b 1 are savings from period 1 to period 2 n r is the interest rate ) 1 ( 1 2 2 1 1 1 r b y c y b c + + = = + Consumers optimization n Consumers maximize utility subject to budget constraints n Lagrangean ) 1 ( . ) ( ) ( max 1 2 2 1 1 1 2 1 , , 1 2 1 r b y c y b c t s c U c U b c...
View Full Document

Page1 / 22

208-2011-L2 - Econ 208 Marek Kapicka Lecture 2 Basic...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online