Answer to Question #302701 in Macroeconomics for Bajaj

Question

In an intertemporal optimizing model consumption, a consumer living from time zero (0) to time t has a longer utility: U (C)= ln C. The market interest rate is r and the consumer is assuming no inheritance.

Derive the consumption relationship and the marginal utilities between two adjacent periods.

Using a diagram, explain the time profiles of paths based on (i) above.

Show that consumption is proportional to the present value of future income at time zero (0) at a given interest rate.

Answer 1

b)