I amcurrentlystudyingfor amasters degree (Economics).

However, since I did not study Economics in my bachelordegree.

Now, I encounter some difficulties in the assignments.

Please teach me and thank you.

3 Optimal Consumption with Financial Wealth In lecture 2, we saw an example where the household only lives for two periods. Now suppose the household lives for N periods, from Period 1 to N. Household receives an exogenous income stream {y1,y2, ...yN}, and accumulate their nancial wealth at in each period. The return on real nancial wealth is 7'. Let household's problem be N max 2 t_lln(ct) (1) C; i=1 subject to (n+1 = (1 + at + yt ct (2) ct 2 0 (3) aN+1 Z 0 (4) where at is the nancial wealth at the beginning of Period t and a1 = 0. 1. Interpret (1)(2)(3) and (4). 2. Write down the inter-temporal budget constraint and derive the Euler equation(s). 3. Assume ,8 = 1, r = 0. Solve for the optimal consumption for each period, {0:}, t = 1, 2, ..., N. Explain how your results are related to permanent income theory. 4. Assume 6 = 1, and 'r > 0 in period 1,2...N. Compute optimal {cgt = 1, 2, ...N} and compare it with that in 3. 5. Assume ,6 = 1, r = 0. What is the marginal propensity to consume in Period 1? Explain the intuition. Likewise, what is the marginal propensity to consume in period 2