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Suppose that a consumer has marginal utility of the form u(c) = ln (c). Suppose that this consumer gets 2 units of income in the
Suppose that a consumer has marginal utility of the form u(c) = ln (c). Suppose that this consumer gets 2 units of income in the first period and 4 units in the second period. Assume beta= 1. Solve for his optimal consumption allocation each period for the case 1 + r = 1 and 1 + r = 2. What happens to the household's consumption as the interest rate rises?
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