題組內容
4. Consider the following two-period problem. The representative household utility function is
$$\log(c1) + \beta \log(c2),$$
where $\beta \in (0,1)$ is the discount factor, $c_t$ is consumption in period $t, \forall t = 1, 2$.
The budget constraints are
$$c1 + a2 = y_1$$
and
$$c2 = y2 + a_2(1 + r),$$
where $r$ is the exogenous net real interest rate, $a2$ is net savings at the end of period 1, and $yt$ is a deterministic endowment at period $t$, $\forall t = 1, 2$. The household faces a financial constraint:
$$a_2 \ge -\ell,$$
where $\ell \ge 0$ represents the exogenous credit limit.
(1) Define \( \lambda \) as the Lagrangian multiplier of the financial constraint. Formulate the Lagrangian equation and derive the intertemporal Euler equation. Express the condition in terms of \( c_1, c_2 \) and \( \lambda \). Please ensure that your representation always implies \( \lambda \geq 0 \). (8%) (Hint: You can define other Lagrangian multipliers if necessary)