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Need help with microeconomics Robinson Crusoe lives for two periods. His rst period income is Y1 and second period income is Y2. He can either

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Need help with microeconomics

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Robinson Crusoe lives for two periods. His rst period income is Y1 and second period income is Y2. He can either save or borrow. Suppose the real interest rate is R; his discount factor is ,6; his utility takes the log form. (a) Set up the consumption-saving model of Robinson Crusoe. (Hint: maximize utility function, subject to two budget constraints) (b) What are the endogenous variables? (c) Derive the intertemporal budget constraint. (Hint: present value of consumption = present value of income) ((1) Derive the consumption Euler equation (e) Solve for the optimal level of consumption and saving. (f) Briey explain why smoothed consumption is optimal. (Hint: lecture notes)

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