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ECO3020F tutorial 7
- Course
- ECO3020F (ECO3020)
- Institution
- University Of Cape Town (UCT)
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currentbudgetconstraint Ctsy t
currentperiodconsumption
E ftp.T mtcurrent
xteTini TEntperiod
income
y consumers
future budget constraint c y t't Itr s
c futureconsumption
y future income
t futurelumpsum taxes
y t futuredisposableincome
Itr s interestandprincipalconsumerearns on their
savings
constraint
Deriving the consumer's lifetime budget
y t itr s isolate s
i
substitute into currentbudgetconstraint
Is t
y z
Ct r r y t
c In y r
The present value of consumption equals the present
value of disposable
income
constraint
Government presentvalue Budget
current period
i.fi
presentvalueof aa
G consumption of goods ofthegovernment in the
G unitspurchased in thefutureperiod
T quantity oftaxescollected incurrent period
T quantity oftaxescollected in futureperiod
constraints forthecurrentandfuture
divideby Itr as we take the budget
and collapse theminto a single time
constraint
, a Lender decrease in current income
decrease in income decrease in lifetimewealth from we to We
lifetime budget constraintshifts left
consumerends up at B afterthe postincome decrease
current and future consumption decrease
consumption decreasesby less than thedecrease in currentincome
Wealth
prime
future
Egg we
ff
ci
1
If IBP
z
t.iq
C We We
12
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