# Hw2 - Skelton Eco 3355 Homework 2 1 Let Nt = n*Nt-1 and Mt = z*Mt-1 for every period t where z and n both exceed 1 The money created in each period

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Skelton Eco 3355 Homework 2 1. Let N t = n*N t-1 and M t = z*M t-1 for every period t, where z and n both exceed 1. The money created in each period is used to finance government purchases for old people (g t ). Prove the monetary equilibrium does not maximize the utility for future generations. Explain (but do not formally prove) why the feasible set line goes through the monetary equilibrium. 2. Let N t = n*N t-1 and M t = z*M t-1 for every period t, where z and n both exceed 1. The money created in each period is used to finance a lump sum subsidy of a t goods for each young person. A) Find the equation for the lifetime budget constraint for individuals in the monetary equilibrium. Graph it, making sure to show an arbitrary indifference curve that maximizes utility and also indicate c 1 and c 2 on the graph. B) Determine the feasible set for this economy. Add the feasible set to the graph you drew in part A. Don’t forget that the feasible set line goes through the monetary equilibrium (as shown by c

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## This note was uploaded on 04/18/2008 for the course ECON 3355 taught by Professor Skelton during the Spring '06 term at SMU.

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Hw2 - Skelton Eco 3355 Homework 2 1 Let Nt = n*Nt-1 and Mt = z*Mt-1 for every period t where z and n both exceed 1 The money created in each period

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