Consider the two-period Neoclassical consumption model seen in
class. Suppose that income is measured in dollars. Let the utility
function take the logarithmic form U(C)=ln C, and the
representative consumer maximize her lifetime utility subject to
her budget constraint. Suppose that income in period 1 is $50,000,
income in period 2 is $30,000, ?=1 and ?=5%.
Do you think that the consumption profile of the agent in this
numerical example is going to be smoother than her income? If so,...