Obtain the five first-order conditions with respect to c1, c2, A1, l1, l2...

1. Obtain the five first-order conditions with respect to c_{1}, c_{2}, A_{1}, l_{1}, l_{2} 2. Then, rearrange the five first-order conditions obtained above into the consumption- savings optimality condition at the bottom. L(c_{1}, c_{2}, A_{1}, l_{1}, l_{2}) = u(c_{1}, c_{2}) + l_{1}[Y_{1}+(1+i)A_{0}-P_{1}c_{1}-A_{1}]+l_{2}[Y_{2}+(1+i)A_{1}-P_{2}c_{2}-A_{2}]

3. Perform the same analysis as in #1 above for the real version of the economy. 4. Starting from the results you obtained in #3 above, perform the same analysis as #2 above to obtain the consumption-savings optimality condition. L(c_{1}, c_{2}, a_{1}, l_{1}, l_{2}) = u(c_{1}, c_{2}) + l_{1}[y_{1}+(1+r)a_{0}-c_{1}-a_{1}]+l_{2}[y_{2}+(1+r)a_{0}-c_{2}-a_{2}]

Document Preview:

1. Obtain the five first-order conditions with respect to c1, c2, A1, 1, 2
2. Then, rearrange the five first-order conditions obtained above into the consumption- savings optimality condition at the bottom.
L(c1, c2, A1, 1, 2) = u(c1, c2) + 1[Y1+(1+i)A0-P1c1-A1]+2[Y2+(1+i)A1-P2c2-A2]
3. Perform the same analysis as in #1 above for the real version of the economy.
4. Starting from the results you obtained in #3 above, perform the same analysis as #2 above to obtain the consumption-savings optimality condition.
L(c1, c2, a1, 1, 2) = u(c1, c2) + 1[y1+(1+r)a0-c1-a1]+2[y2+(1+r)a0-c2-a2]