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# Hw1 - Skelton Eco 3355 Homework 1 1 Assume an economy has a...

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Skelton Eco 3355 Homework 1 1. Assume an economy has a constant population of N = 100. Each individual is endowed with 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 c 1 and c 2 that maximizes the utility of future generations. B) Now, consider the monetary equilibrium. Write down equations that represent the constraints on first- and second-period consumption for a typical individual. Combine these constraints into a lifetime budget constraint. C) Suppose the initial old are endowed with M = 400 units of fiat money. What condition represents the clearing of the money market in an arbitrary period t? Use this to find the real rate of return for fiat money. For the rest of this problem, suppose preferences are such that individuals wish to hold real balances of money worth: y/(1+v t /v t+1 ) goods {Note:

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Hw1 - Skelton Eco 3355 Homework 1 1 Assume an economy has a...

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