tutorial1solutions - Suggested Solutions to EC2102...

Info iconThis preview shows pages 1–2. 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
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Suggested Solutions to EC2102 Macroeconomic Analysis I Tutorial 1, Week 3 (January 24-28, 2011) Question 1 ( i ) Let us set up the maximization problem for Mr. j , dropping the superscript j for now. Mr. j wants to max c 1 ;c 2 u ( c 1 ) + &u ( c 2 ) s:t: c 1 + c 2 1 + r = y 1 + y 2 1 + r & !: Rewriting the lifetime budget constraint, we have that c 2 ( c 1 ) = ( ! ¡ c 1 ) (1 + r ) : Using the above and the fact that u ( c t ) = p c t for t = 1 ; 2 , Mr j &s maximization problem is just max c 1 p c 1 + & p ( ! ¡ c 1 ) (1 + r ) : ( ii ) The F.O.C. to Mr j &s maximization problem in ( i ) , dropping the superscript j , is 1 2 p c & 1 + ¡ & (1 + r ) 2 p ( ! ¡ c & 1 ) (1 + r ) = 0 ; (1) which yields c & 1 = ! & 2 (1 + r ) + 1 = y 1 (1 + r ) + y 2 & & 2 (1 + r ) + 1 ¡ (1 + r ) : (2) From the ¡rst period budget constraint, in equilibrium s & 1 = y 1 ¡ c & 1 = y 1 ¡ y 1 (1 + r ) + y 2 & & 2 (1 + r ) + 1 ¡ (1 + r ) : From the lifetime budget constraint, in equilibrium, c & 2 = ( ! ¡ c...
View Full Document

This note was uploaded on 01/18/2012 for the course ECONOMICS 2102 taught by Professor Tan during the Spring '11 term at National University of Singapore.

Page1 / 4

tutorial1solutions - Suggested Solutions to EC2102...

This preview shows document pages 1 - 2. Sign up to view the full document.

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