76 826
Assignments Done
Successfully Done
In June 2019

Answer to Question #40980 in Macroeconomics for Yuki

Question #40980
Let Ct denote the individual's consumption of nondurables on date t, and let Dt be the stock of durable goods the consumer owns at date t. A stock of durables yields its owner a proportional service flow each period it owned. Income process is deterministic. The representative consumer has a perfect foresight about his or her income process and maximizes.
U1= Σβt[θlogCt + (1 − θ)logDt] (∞ t=1). subject to Dt = (1−δ)Dt−1 +X and At = (1+r)(At−1 +Yt −Xt −Ct)
where A0 and D0 is initially given. Here At is a financial wealth at the end of date t, Yt is date t income and r is a market interest.
1) What are the choice variables in this maximization problem? Derive first order conditions.
2)Using FOC, show that
θ/Ct=(1-θ)/Dt+β(1−δ)(1-θ)/Dt+1+β^2(1−δ)^2(1-θ)/Dt+2+・・・ and interpret it.
3)Using FOC, show that
4)Assume β(1+r)=1 and let ι ≡ 1-(1−δ)/(1+r), show that the optimal level of C1 and D1 are given by
Expert's answer
Dear visitor
Unfortunately, your question requires a lot of work and cannot be done for free. Please submit it with all requirements as an assignment to our control panel and we’ll assist you

Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!


No comments. Be first!

Leave a comment

Ask Your question

Privacy policy Terms and Conditions