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As a financial planner, suppose you observe a client with the lifetime utility . With an interest rate of 20% and a lifetime wealth of
As a financial planner, suppose you observe a client with the lifetime utility .
With an interest rate of 20% and a lifetime wealth of $2000, answer the questions below.
- What equilibrium current and future consumption level would you recommend to this client? (Show all calculations)
- What is the client's lifetime utility from current and future consumption?
- suppose there is an increase in lifetime wealth from $2000 to $2500. show how this will affect the equilibrium future, current consumption bundles, and lifetime utility. (show all steps and calculations).
- Suppose the interest rate drops from 20% to 15% and lifetime wealth remains $2000, show how the client will smooth current and future consumption. (show all steps and calculations).
- How do the impacts of changes in lifetime wealth and interest rates on current and future consumption differ?
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