Topic 2 Cobb-Douglas Dynamic decision maker Consider a representative consumer who has to decide the allocation of his p

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Topic 2 Cobb Douglas Dynamic Decision Maker Consider A Representative Consumer Who Has To Decide The Allocation Of His P 1 (376.07 KiB) Viewed 32 times

Topic 2 Cobb-Douglas Dynamic decision maker Consider a representative consumer who has to decide the allocation of his permanent income to consumption over 3 periods starting today. The permanent income is given by the consumption goods produced over the 3 periods, which is equal to a total of 100 units. The weights on consumption over the 3 periods are {1, 0.8, 0.64}, that is consumption today weights more than consumption further away in the future. CPI, measuring the cost for living, is equal to 1 in period 1. Inflation is given by 2%. Banks pay zero nominal interest rate for savings. a) Calculate CPI for the 3 periods. b) What are price for consumption in periods 1, 2, and 3? c) If the representative consumer is a Cobb-Douglas decision maker, how many units of consumption good to be consumed in period 1, 2 and 3?