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4. Recall that the household's two-period budget constraint is: Py + Pyz/(1+R) +by X (1+R) = Pc + Pez/(1+R) +by/(1+R) (1) Recall also that the
4. Recall that the household's two-period budget constraint is: Py + Pyz/(1+R) +by X (1+R) = Pc + Pez/(1+R) +by/(1+R) (1) Recall also that the final stock of bonds in one period determines the initial stock of bonds in the subsequent period, which means that the household's budget constraint in period 3 can be expressed as: Pys + b2 (1 + R) = P + bg (2) (a) Using equations (1) and (2), find the household's three-period budget constraint. (b) Suppose this household does comparatively little consumption in periods 1 and 2, with the bulk of the consumption taking place in period 3. Suppose also that the household receives income in period 1, but no income in periods 2 or 3. What does your answer to part (a) imply about the effect of a higher interest rate on this household's wealth In other words, would this household be able to consume more in some periods without reducing consumption in other periods following an increase in the interest rate? 4. Recall that the household's two-period budget constraint is: Py + Pyz/(1+R) +by X (1+R) = Pc + Pez/(1+R) +by/(1+R) (1) Recall also that the final stock of bonds in one period determines the initial stock of bonds in the subsequent period, which means that the household's budget constraint in period 3 can be expressed as: Pys + b2 (1 + R) = P + bg (2) (a) Using equations (1) and (2), find the household's three-period budget constraint. (b) Suppose this household does comparatively little consumption in periods 1 and 2, with the bulk of the consumption taking place in period 3. Suppose also that the household receives income in period 1, but no income in periods 2 or 3. What does your answer to part (a) imply about the effect of a higher interest rate on this household's wealth In other words, would this household be able to consume more in some periods without reducing consumption in other periods following an increase in the interest rate
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