The linear quadratic permanent incom Show more Can somone help me with this high level macroeconomics problem? The linear quadratic permanent income model is a very useful general equilibrium model that we can solve in closed form. It specifes a production technology rather than fixed endowments and it easily allows aggregation of disparate consumers. In this economy the consumer maximises: where et is an exogenous endowment or labor income stream. Assume (beta)B =1/(1+r); the discount rate rate equals the interest rate or marginal productivity of capital. Show that optimal consumption follows: This shows that consumption equals permanent income orginated by Friedmans permanent income hypothesis. Show less
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