Problem 1 (20 points) Consider an economy with a constant population of N - 200.

Question

Problem 1 (20 points) Consider an economy with a constant population of N - 200. Individuals are endowed with y -10 units of the consumption good when young and nothing when old. 1. What is the equation for the feasible set of this economy? Portray the feasible set on a graph. With arbitrarily drawn indifference curves, illus- trate the stationary combination of ci and c2 that maximizes the utility of future generations 2. Now look at a monetary equilibrium. Write down equations that repre- sent the constraints on first- and second-period consumption for a typical individual. Combine these constraints into a lifetime budget constraint 3. Suppose the initial old are endowed with a total of M - 800 units of fiat money. What condition represents the clearing of the money market in an arbitrary period t? Use this condition to find the real rate of return of fiat monev 4. Assume the lifetime utility function is tc ,tal where = 1/2·Setup the Lagrangian function, derive the first-order conditions, and find algebraic expressions for consumption when young, when old for all t 2 1. Show your work. 5. How does the return of money affect consumption when young, when old and real money holdings (vtmt)? Provide intuitive answers for each case 6. What is the value of money in period t (vt)? Use the assumption about preferences and your answer in part (3) to find an exact numerical value. What is the price of the consumption good pt?

Explanation / Answer

Portray the feasible set on a graph .with arbitrary drawn indifference curves illustrate the combination of c1 t c2 that maximize the utility of future generations. Old are endow with a total of M =400untits of Fiat money.The represent the combination on first and second period constraints.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.