題組內容

1. Individuals' utility-maximizing choices over time will obviously depend on how they feel about the relative merits of consuming currently or waiting to consume in the future. People may show some impatience in their choices by assuming that the utility from future consumption is implicitly discounted in the individual's mind. For example, we may assume that the utility function for consumption, U(C), is the same in both periods (with U'>0, U''<0), but that period 1's utility is discounted in the individual's mind by a "rate of time preference" of $$\frac{1}{1+\delta}$$ (where $$\delta > 0$$). If the intertemporal utility function is also separable, we can write the following equation:

$$U(C0, C1) = U(C0) + \frac{1}{1+\delta}U(C1),$$

Maximization of the function subject to the intertemporal budget constraint:

$$I = C0 + \frac{C1}{1+r}$$

Where r is the rate of return received on savings and 1 denotes the income.

(2) Prove that even though a consumer may have a preference for present goods \( (\delta > 0) \), he or she may still consume more in the future than in the present if the rate of returns received on saving is high enough. (15%)