Question
We have two consumers, Dagwood and Dagwood's barber who we will refer to from this point on as 'The Barber.' Dagwood and The Barber both
We have two consumers, Dagwood and Dagwood's barber who we will refer to from this point on as 'The Barber.' Dagwood and The Barber both prefer to perfectly smooth consumption, consistent with the lifetime theory of consumption. The initial conditions are the same for both consumers and are as follows.
Y (current income) = 300K
a (current wealth) = 0
Yf (expected future income) = 150K
af ( expected future wealth) = 100K
r (the current real rate of interest) = -.05 (negative 5%)
Draw two completely labeled diagrams (the two period consumption model) depicting these initial optimal consumption bundles as points C*A. Please put the diagrams next to each other with the left diagram representing Dagwood and the right diagram representing The Barber.
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