Lecture Notes 7

Lecture Notes 7 - to period the of start at the capital of...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Budget Constraint for Consumption in Present Period vs Later Period Present consumption C 0 Later consumption C 1 Y 0 Y 1 Slope = - (1+r) Constraint is C 1 = Y 1 + (Y 0 – C 0 )(1+r) or C 0 + C 1 / (1+r) = Y 0 + Y 1 / (1+r) Intercept is Y 0 + Y 1 / (1+r) borrowing saving Intercept is [Y 0 + Y 1 / (1+r)] [1+r] If Y 0 + Y 1 / (1+r) gets bigger, whole budget constraint moves out parallel. Y 0 + Y 1 / (1+r) is called the present discounted value (PDV) of the income stream
Background image of page 1

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

View Full DocumentRight Arrow Icon
( 29 ( 29 ( 29 ( 29 ( 29 on. depreciati physical plus ce obsolescen to due losses capital plus rate interest real the is this 1 1 1 is investment of dollar per price rental Then the . 1 1 1 1 : that case the be must it even, break
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: to period the of start at the capital of units K buying investor an For . is on depreciati physical of rate the and , is rate interest nominal the , is sector in the progress technical of rate the , is inflation of rate the period, the of start at the good capital the acquire to price the is time, of period a during capital of price rental the be Let δ ρ δρ + +-≈-+ + +-=-+--+ = +-+-+ + = i r i i r PK RK i r PK RK r i KP r RK PK r i P R The Rental Price of Capital...
View Full Document

This note was uploaded on 04/07/2008 for the course ECO 100 taught by Professor R.willig during the Spring '08 term at Princeton.

Page1 / 2

Lecture Notes 7 - to period the of start at the capital of...

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