Mortgages – FPM, VPM. Mortgages. Borrow $ because property owner wants the money NOW. Put the property up as security for the loan.
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Optimize with respect to h and z.
In contrast to more flexible analysis, consumer optimizes w.r.t. discounted average price ratio.
Opportunity to save or borrow allows MU of income to converge.
Optimize with respect to hi, ciand zi.
Moving cost = 1
FP – Mortgage – Moves
VP – Mortgage – No Moves