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is everything here. no missing information 4 Borrowing Constraint Consider a representative consumer who lives for three periods, he or she has an exogenous endow-
is everything here. no missing information
4 Borrowing Constraint Consider a representative consumer who lives for three periods, he or she has an exogenous endow- ment stream given by y1, y2, y3 and can borrow and lend at a given interest rate it, which is the interest rate between period t - 1 and period t. Assume that he/she starts out with no wealth (that is, fo = 0). The discount factor is = 1. The consumer's problem is: maxc1,c2,c3 u( C1 ) + u(c2) + u(c3) subject to c1 + 61 = y1 C2 + 62 = y2 + (1+ 21) . b1 C3 = y3 + (1 + 22) . b2 1. For simplicity, assume that it = 0. Further assume the following form for the utility function: u(c) = In(c). Solve for the optimal consumption plan for the three periods. 2. Suppose y1 = y3Step by Step Solution
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