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Assume Peter's preferences over time (periods are yearly) are given by U(C1, C2, C3, C4, ....) = In(c1) + Bin(c2) + B2 In(c3) +.... Assume
Assume Peter's preferences over time (periods are yearly) are given by U(C1, C2, C3, C4, ....) = In(c1) + Bin(c2) + B2 In(c3) +.... Assume that Peter can borrow or lend at the same rate r=10% and B = 1.15 Then, we know the following about how Peters consumption changes over time: Peters consumption declines the older he gets. Peters consumption increases the older he gets Peters consumption is constant over his life-time We can't tell anything about his consumption level because we have not been given any information about his income over his life-time
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