Chapter 8 exam questions

Question 1

Derive an intertemporal budget constraint

Answer 1

1. Make a budget constraint for current period
2. Make a budget constraint for future period
3. Get the saving rate by itself
4. subsitute the saving rate of the current period into the future period

Lifetime wealth can also equal: (2+r)/(1+r) x (y-t)

Question 2

Optimal consumption choices

Euler

Answer 2

*

Question 3

Would the ricardian equivalance hold

Answer 3

• See whether governmetn liabilities changes and if it does not then it does hold