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Deleting lamda(t) and lamda(t+1)

  1. Apr 20, 2012 #1
    1. The problem statement, all variables and given/known data

    Let's say u(ct) = logct

    The first order conditions are:

    ct: βt/ctt = 0 (t = 0, 1, 2, ...)

    kt+1 = -λt + λt+1R = 0 (t = 0, 1, 2, ...)

    Delete λt and λt+1 (Euler equation) and you get

    1/ct = βR/ct+1

    ∴ct+1 = βRct

    2. Relevant equations

    This was part of an explanation of a proof, and I am stuck on "Delete λt and λt+1 (Euler equation) and you get 1/ct = βR/ct+1"

    I am not sure how the two lamdas were deleted, nor the rule that was applied.

    3. The attempt at a solution

    A search for "euler equation" has been unfruitful, mathematical manipulation yields:
    λt = βt/ct

    Any help would be greatly appreciated.
     
  2. jcsd
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