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Paul values consumption in period 0 (co) and in period 1 (Cl) using u = In(co) + 0.8 In(cl). Paul can save or borrow at
Paul values consumption in period 0 (co) and in period 1 (Cl) using u = In(co) + 0.8 In(cl). Paul can save or borrow at the interest rate r = 0.10. Denote net saving in period 0 by so.
Paul's income in period 0 (yo) is 80 while that in period 1 (Yi) is 110. Paul does not pay
any taxes.
a) Write down Paul's budget contraints in period 0 and in period 1. How many units of period 1 consumption does Paul have to give up to get an extra unit of consumption in period 0 (at the margin)?
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