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Ben also lives for two periods and has preferences represented by the following utility function: U(C0,C1)=ln(C0)+1+1ln(C1) where the subscripts represent this period (0) and the
Ben also lives for two periods and has preferences represented by the following utility function: U(C0,C1)=ln(C0)+1+1ln(C1) where the subscripts represent this period (0) and the next period (1) and Ct is in millions of dollars. Ben's wealth is 18 million dollars, and he has no labor income. His rate of time preference is 8%. The interest rate is initially 7\%, but then it falls by 1 percentage point. By how much does Ben's period 1 consumption decrease? Note: If you find an increase, your answer should be negative. Also, your answer should be expressed in terms of millions of dollars, as Ct is in millions of dollars. (Round to at least 4 decimal places in your intermediate steps to get more accurate answers.)
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