Consider the problem of an individual that has Y dollars to spend on consuming over o periods. Let c denote the amount of consumption that the individual would like purchase in period 1 and c2 denote the amount of consumption that the individual ould like to consume in period 2. The individual begins period 1 with Y dollars and n purchase c units of the consumption good at a price P and can save any unspent ealth. Use s1 to denote the amount of savings the individual chooses to hold at the end period 1. Any wealth that is saved earns interest at rate r so that the amount of wealth the dividual has at his/her disposal to purchase consumption goods in period 2 is (1+r)s1. nis principal and interest on savings is used to finance period 2 consumption. Again, r simplicity, we can assume that it costs P, dollars to buy a unit of the consumption od in period 2.
Consider the problem of an individual that has Y dollars to spend on consuming over o periods. Let c denote the amount of consumption that the individual would like purchase in period 1 and c2 denote the amount of consumption that the individual ould like to consume in period 2. The individual begins period 1 with Y dollars and n purchase c units of the consumption good at a price P and can save any unspent ealth. Use s1 to denote the amount of savings the individual chooses to hold at the end period 1. Any wealth that is saved earns interest at rate r so that the amount of wealth the dividual has at his/her disposal to purchase consumption goods in period 2 is (1+r)s1. nis principal and interest on savings is used to finance period 2 consumption. Again, r simplicity, we can assume that it costs P, dollars to buy a unit of the consumption od in period 2.
Chapter17: Capital And Time
Section: Chapter Questions
Problem 17.8P
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