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Suppose that an economy consists of 100 households, 50 of which have no income in period 1 and income of $50,000 in period 2 and 50 of which have no income of $40,000 in period 1 and no income in perod 2. Assume that the price of the good in $1 in both periods. Suppose that each household decides that its consumption in period 1 will equal one-half that present value of its income from both periods. Find the equilibrium value of the interest rate. How much does each household save in period 1 and consume in each period?

Econometrics, Economics

  • Category:- Econometrics
  • Reference No.:- M9495912

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