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This problem substitutes financial health with housing in a 2 period consumption savings model. The representative consumer has the utility function u(c1, c2) = lnc1 + lnc2 with each period budget constraint as : 1) P1c1 + H1h1 = H1h0 + Y1...2) P2c2 + H2h2 = H2h1 + Y2...where P is the price level of consumption good, H is the unit value (price) of housing, h1 is the level of housing decided to be owned at the end of period 1 and h2 is the level of housing decided to be owned at the end of period 2. h0 is the level of housing in the beginning of period 1 and it is assumed to be equal to 0. a) What is the optimal choice of h2? Explain. b) Let H2 / H1 = 1 + v, where v is the nominal valuation rate of the house (rate of increase in the nominal value-price of housing from period 1 to period 2). Using the period by period budget constraint, show that the Lifetime Budget Constraint is P1c1 + ((P2c2) / (1+v)) = Y1 + (Y2 / (1+v)). c) Use the Lifetime Budget Constraint and write down the Lagrangian of the consumer and the first order conditions.
Explain the term- inventory investment We would have a negative inventory investment whenever inventories decrease. By net investments we mean gross investments minus depreciat
In a survey of 120 publicly-traded companies, the average price-earnings ratio was 18.5 with a standard deviation of 8.2. When testing the hypothesis (at the 5% level of significan
A scientist postulates that grazing by gastropod snails affects the settlement of Spirorbid worms in estuaries. She sets up a manipulative experiment to test this by using cages to
Define the points of individual choices makes and interact. A. How individuals make choices: • Scarcity • Opportunity cost • Trade-offs • Marginal analysis B. Ho
Can the federal government go bankrupt? Explain.
Using production possibility frontiers, and indifference curves for Argentina and Brazil, illustrate and explain the movement of both countries to the free-trade equilibrium patter
You are the manager of an organization in America that distributes blood to hospitals in all 50 states and the District of Columbia. A recent report indicates that nearly 50 Americ
Aggregate demand in the cross model Because C and Im depends positively on Y while G, I and X are exogenous, aggregate demand Y D will depend positively on Y: Y D (Y) = C(
THE GOALS OF MACROECONOMIC POLICY Economic analysis attempts to explain why problems arise in the economy and how these problems can be dealt with. It is, therefore, indispens
ABC Sports, a store that sells various types of sports clothing and other sports items, is planning to introduce a new design of Arizona Diamondbacks' baseball caps. A consultant h
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