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Consider the lifecycle model of labour supply with multiple periods. Assume that the utility function in each period is the same thus preferences for leisure
Consider the lifecycle model of labour supply with multiple periods. Assume that the utility function in each period is the same thus preferences for leisure and consumption are constant over time. Individuals aim to maximise lifetime utility and are able to save and borrow. If individuals know that the wage in period 1 (w1) will be higher than the wage in period 2 (w2), we expect that they will work [Select ] hours in period 1 compared to period 2. This behaviour is called [ Select ] V Consumption is expected to be [Select ] If individuals instead behave as if in a static labour supply model(*), faced with the different wages in period 1 and 2 (w1>w2), [ Select ] (") individuals are not forward-looking; no saving, borrowing; income = consumption in each period
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