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Why is capital assumed to be a good accumulated in the current period t but being used in t+1? I think my interpretation is wrong here. I understand that households problem is dynamic because of this capital component but a more elaborate explanation will really help me understand it.

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  • $\begingroup$ I failed to mention the expectation and discount factor here that makes the household problem dynamic as well. $\endgroup$
    – Damien
    Oct 1 at 20:46
  • $\begingroup$ Please clarify your specific problem or provide additional details to highlight exactly what you need. As it's currently written, it's hard to tell exactly what you're asking. $\endgroup$
    – Community Bot
    Oct 2 at 1:32
  • $\begingroup$ @Damien. The introduction of time allows for more realistic economic behaviour (i.e. savings and investment), that would not otherwise happen if time did not exist. In many ways, introducing time into a model is a first-approximation at introducing uncertainty. $\endgroup$
    – EB3112
    Oct 2 at 8:22

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