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Consider a household whose utility is determined by its consumption in periods 0 and 1. Let p and denote the consumption in periods 0 and
Consider a household whose utility is determined by its consumption in periods 0 and 1. Let p and denote the consumption in periods 0 and 1, respectively. The utility of this household can be represented by a utility function Ufcn, 1) = ulca) + puley). (2) Assume further that the per-period utility u(c) is given by u(c) = logc, and the discount factor Bis given by p = . In periods 0 and 1, this household is endowed with incomes yy = 190 and y1 = 380, respectively. Importantly, this household can save or borrow in period 0 at the interest 1 rater = g- (a) Check if the per-period utility function u(c) satisfies i) u'(c) > 0 and i) u"(c) 0and ii) U, o,
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