Macroeconomics Assignment 1. Consider a two period neoclassical consumption model where an individual has the following utility function: U(C1,C2)=ln(C1)+ßln(C2) Where C1 is consumption in the current period, C2 is the consumption in the future period and ß is the discount factor on future consumption. Suppose the real interest rate is 10%, the individual has a current income of £5000 and a future income of £22000. The individual pays no tax. What is the individual’s inter-temporal budget constraint? Explain (4 marks). The general form of the Euler equation is u’(C1) = ßu’(C2) What is the individual’s specific…
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