Question

2.1. Consider an economy with a constant population of N 100. Each person is endowed with y-20 units of the consumption good when young and nothing when old. a. What is the equation for the feasible set of this economy? Portray the feasible set on a graph. With arbitrarily drawn indifference curves, illustrate the stationary combination of c1 and C2 that maximizes the utility of future generations b. Now look at a monetary equilibrium. Write down equations that represent the constraints on first- and second-period consumption for a typical person. Combine these constraints into a lifetime budget constraint. c. Suppose the initial old are endowed with a total of M -400 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 return of fiat monev. For the remaining parts of this exercise, suppose preferences are such that each person wishes to hold real balances of money worth goods. t+1 (In the appendix to this chapter, it is verified that this demand for fiat money comes from the utility function ct12c2,t+1 ]1/2.) d. What is the value of money in period t, vr? Use the assumption about preferences and your answer in part c to find an exact numerical value. What is the price of the consumption good Pt? e. If the rate of population growth increased, what would happen to the

Answer 1

$20=2000$