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that the consumer is more patient). How does demand for c1 and c2 change with a change in period 1 income,
, ? In other words, find and interpret these comparative static results. An increase in period 1 income, increases consumption in both periods.
How does demand for c1 and c2 change with a change in period 2 income,
, ? In other words, find and interpret these comparative static results. An increase in period 2 income, increases consumption in both periods. A8) What is her optimal amount of s? – – ****again not in your question set: How does her optimal amount of s change with y1, y2, r and δ ? – She saves more with an increase in period one income (
with an increase in period 2 income,
. , the interest rate and . She saves less A9) How would we incorporate inflation in this model? What would be the effect of increasing
inflation on period one consumption? On period 2 consumption? On savings?
lowers period
Inflation is reflected in an increase in period 2 prices; higher . An increase in
2 consumption, but leaves period 1 consumption and savings unchanged. This is a result of using
the CobbDouglas utility function, and does not hold in general (recall, there are no crossprice
effects in the reduced form demand equations when we i...
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 Fall '07
 CORINNELANGINIER
 Supply And Demand, Stock and flow, Saving

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