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Households live in a two-period endowment economy. They earn endowment income, con- sume and save during young age. Now, we assume households are myopic in the sense that their true discount factor is but they use a myopic discount factor < when making de- cisions. Therefore, the households actual decisions (under myopia ) are different from the desirable decisions under . A marginal cost of saving is marginal utility from (1)___________ they give up for saving. A marginal benefit of saving is marginal utility from (2)___________ using saving. Based on this information, we can see that myopic view using < leads households to (3)___________ their benefit from the saving at young age. The results cause that the actual saving and fu- ture consumption are (4)___________ desirable level and the actual current consumption is (5)___________ desirable level. Choose the best description for each blank to complete the right explanation.

(1)(a) the future consumption /(b) the current consumption

(2)(a) the future consumption /(b) the current consumption

(3)(a) overestimate /(b) underestimate /(c) estimate correctly

(4)(a) larger than /(b) smaller than /(c) equal to

(5)(a) larger than /(b) smaller than /(c) equal to

(6)write down the households trade-off condition in a two-period endowment economy.

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