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In the two-period model of consumption and saving, assume that individuals can borrow/lend at an interest rate r > 0. Suppose that there are two
In the two-period model of consumption and saving, assume that individuals can borrow/lend at an interest rate r > 0. Suppose that there are two consumers, i = {1,2}, with utility functions given by
U(ci, c'i) = ln(ci) + ln(c'i)
Given =0.8, (y1,y1') = (100,120), (y2, y2') = (120,100), (t,t') = (20,10), and r = 10%. Calculate the optimal consumption bundle (c, c') and savings for each consumer.
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