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Unformatted text preview: Page 1 of 2 Pages ECON 302 Macroeconomic Theory 2 Instructor: Sharif F. Khan Department of Economics University of Waterloo Fall 2011 Assignment 2 (Optional) Total Marks: 50 Marks Read each part of the question very carefully. Show all the steps of your calculations to get full marks, unless it is mentioned otherwise. 1. [20 marks] Suppose that the representative consumers preferences are given by the utility function ( ) , ln ln , l C l C U + = where C is consumption and l is leisure. The consumers budget constraint is given by ( ) T l h w C- +- = , where w is the real wage, h is the quantity of time the consumer has available, is dividend income, and T is the lump-sum tax. a) Set up the consumers optimization problem. b) Write down the Lagrangian associated with this consumers optimization problem. c) Assume that there is an interior solution to the consumers problem....
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This note was uploaded on 02/05/2012 for the course ECON 302 taught by Professor Jean-paullam during the Fall '08 term at Waterloo.
- Fall '08