Consider the two-period Neoclassical growth model seen in class. Suppose that income is measured indollars. Let the utility function take the logarithmic form U(C)=In C. Suppose that Y, = $50,000, andY2 = $30,000, and ß = 1 and R= 5%. B.3 Suppose that income in period 2 is decreased to Y2 = $15,000. What happens to your answer in B.2?B.4 Argue that your answers in B.2 and B.3 showcase how consumption is smoother than income in thetwo-period Neoclassical consumption model.

Given information 2 period consumption model U=log(C) Income in period 1=$50000 Income in period 2 =…

Consider the two-period Neoclassical growth model seen in class. Suppose that income is measured in dollars. Let the utility function take the logarithmic form U(C)=In C. Suppose that Y, = $50,000, and Y2 = $30,000, and ß = 1 and R= 5%.

Consider the two-period Neoclassical growth model seen in class. Suppose that income is measured in dollars. Let the utility function take the logarithmic form U(C)=In C. Suppose that Y, = $50,000, and Y2 = $30,000, and ß = 1 and R= 5%.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter17: Economic Growth: Resources, Technology, Ideas And Institutions

Section17.2: A Production Function And Economic Growth

Problem 3ST

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Concept explainers

Economic Growth

It means the rise in the manufacturing levels of a country’s products/services over a while. It is calculated in terms of the real income of the people of the country. When the production of products/services begins, the manufacturers will hire employees, which in turn raises the income of the people and it will also raise the buying power, this eventually leads to the circulation of money that directly helps in the increase in the Gross Domestic Product (GDP). Thus, GDP is calculated by economists to calculate the growth in the country.

Question

Consider the two-period Neoclassical growth model seen in class. Suppose that income is measured in
dollars. Let the utility function take the logarithmic form U(C)=In C. Suppose that Y, = $50,000, and
Y2 = $30,000, and ß = 1 and R= 5%.

B.3 Suppose that income in period 2 is decreased to Y2 = $15,000. What happens to your answer in B.2?
B.4 Argue that your answers in B.2 and B.3 showcase how consumption is smoother than income in the
two-period Neoclassical consumption model.

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