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Consider the decision problem of a representative household optimally choosing a sequence of consumption {c} and asset holdings {art/} over an infinite horizon, taking as
Consider the decision problem of a representative household optimally choosing a sequence of consumption {c} and asset holdings {art/} over an infinite horizon, taking as given the real interest rate r (assumed to be constant), the initial wealth ao, and the sequence of labor income {w/}. The household's preferences are represented by E. [B'u(c.) where B=1/(1+p) , p>0. 1=0 Take the utility function to be u(c,) = ac, -(1/2)c, for 0
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