ECON302_Assignment4_F11_Sol_Full

ECON302_Assignment4_F11_Sol_Full - ECON 302 Macroeconomic...

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ECON 302 Macroeconomic Theory 2 Instructor: Sharif F. Khan Department of Economics University of Waterloo Fall 2011 Suggested Solutions to Assignment 4 (Optional) Total Marks: 15 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. [15 marks] Consider a two-period consumer with the utility function: ( ) , ln ln , ' ' c c c c u + = where c is current period consumption and c' is future period consumption. For each unit of consumption good saved (borrowed) in the current period, the consumer receives (pays) 1+r units of consumption good in the future period. Assume that borrowing and lending rates of real interest are same. Her exogenous income is y in the current period, and y ' in the future period. In addition, she pays t units of consumption good as a lump- sum tax to the government in the current period, and t' units in the future period. Assume that consumer starts the current period with no assets. a)
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ECON302_Assignment4_F11_Sol_Full - ECON 302 Macroeconomic...

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