2. (26 points) Consider a T period problem where consumers have preferences over

Question

2. (26 points) Consider a T period problem where consumers have preferences over consumption and leisure. Consumers can work in competitive rms which hires labor and capital. There is no government sector

i) (8 points) Dene a sequential market equilibrium for this economy.

ii) (8 points) Dene a Arrow Debreu competitive equilibrium for this economy.

iii) (8 points) Derive the Euler equation for consumption. Explain how does this show that the cost and benet of savings in equalized by the agent. iv) (2 points) Derive the intratemporal condition between labor and consumption.

Explanation / Answer

i )

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