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3 Bequests and taxation in the intertemporal consumption model Consider a household that maximizes utility from consumption over two periods 311%}: u (C1) + u
3 Bequests and taxation in the intertemporal consumption model Consider a household that maximizes utility from consumption over two periods 311%}: u (C1) + u (C2) (1) subject to the intertemporal budget constraint 02 W. 0 _ 1+1+R Question 3.1 What is the economic reason for why we assume that the utility function is concave? I Question 3.2 Derive the Euler equation for the household. The Euler equation relates the marginal utility of consumption in periods 1 and 2 under the optimal consumption choice. Make sure you provide the derivation so that it is clear how you did it (just the nal answer is not enough). I Question 3.3 Assume that the household can leave bequests in the amount of B Z 0 at the end of period 2, maybe for the children or for charity. Modify the intertemporal budget constraint appropriately to allow for this possibility
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