Write the budget constraint for each period

Reference no: EM132119388

Question: The intertemporal budget constraint with three periods: Consider an economy that exists for three periods: period 1, period 2, and period 3. In each period, the government must satisfy the budget constraint Bt+1 = (1+i)Bt + Gt - T+ .

(a) Write this budget constraint for each period.

(b) What must be true about B4?

(c) Using the result from part (b), solve the period 3 budget constraint for B3, and substitute this back into the period 2 budget constraint.

(d) Solve this new version of the period 2 budget constraint for B2, and substitute the result back into the period 1 budget constraint.

(e) At this point, you should have the intertemporal budget constraint for the three-period economy. Interpret this equation.

Reference no: EM132119388

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