Q8. (30 points) Consider a two-period consumption-savings decision problem. The agent takes income y = 11 and y' = 15 as

[answerhappygod]

Q8 30 Points Consider A Two Period Consumption Savings Decision Problem The Agent Takes Income Y 11 And Y 15 As 1 (57.17 KiB) Viewed 30 times

Q8. (30 points) Consider a two-period consumption-savings decision problem. The agent takes income y = 11 and y' = 15 as well as the interest rate r = 0.1 as given. The agent chooses c and c' to maximize log(c) + +Blog (c') where = 0.9 is the discount factor. Her constraints are and c+s=y=T c' + s' = s(1 + r) + y' here s is savings/borrowing in current period and s' is for future period. 7 = 1 denotes lump-sum taxes. (a) What is the optimal value for s'? Explain it intuitively. (b) Derive the lifetime budget constraint of the agent. (c) Compute the first order condition, and derive the Euler equation. (d) What is the optimal consumption decision of this agent? Solve for s,c*,c* (e) Is the agent borrower or saver?