Please do it ASAP I'll upvote for correct Question 2.An economy exists for only two periods, and the government wishes to maximize theutility function:u(C, C2) = Ei=1ßt-1InC;(2.1)Where C, is consumption in the period t = 1,2 and ß is the discount factor.There is exogenously given total income Y, in period 1, that must be allocated betweenconsumption (C,), private investment (I,) and a fixed amount of government investment(G).Income in period 2 (Y2) is generated by G and I, according to the following functionY2 = (G + 1,)“,0 < a < 1(2.2)All of the income in period 2 (Y2) is consumed (i.e., Y2 = C2).%3Da) Write down the resource (i.e., income Y, ) allocation between consumption,private investment, and government investment in period 1.b) Derive the optimal allocation of private investment in period 1 (I;) in theeconomy.c) Draw and interpret the diagrams of the total and marginal utility of investmentand show how they reach the optimal investment.Page 2 of 4d) How does a change in the initial income (Y1) and the government investmentaffect the optimal investment (I;)?e) Illustrate the changes in diagrams.

Utility function for two time periods : U(c1 , c2 ) = b0 ln (c1) + b1 ln (c2) (Beta is taken…

Question 2. An economy exists for only two periods, and the government wishes to maximize the utility function: u(C,, C2) = E?=1ßt-!InC; (2.1) Where C, is consumption in the period t = 1,2 and ß is the discount factor. There is exogenously given total income ?, in period 1, that must be allocated between consumption (C,), private investment (I,) and a fixed amount of government investment

Question 2. An economy exists for only two periods, and the government wishes to maximize the utility function: u(C,, C2) = E?=1ßt-!InC; (2.1) Where C, is consumption in the period t = 1,2 and ß is the discount factor. There is exogenously given total income ?, in period 1, that must be allocated between consumption (C,), private investment (I,) and a fixed amount of government investment

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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