Feb08_OGQuestions - Macro I OG Practice Questions Russell Cooper February 2008 Question 1 Consider an overlapping generations model in which agents

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Macro I: OG Practice Questions Russell Cooper February 2008 Question 1 Consider an overlapping generations model in which agents live two periods. In period 1, they are endowed with e > 0 units of the single good. They have no endowment of leisure and no access to a production technology. They have a zero endowment in period 2. Agents obtain utility from consuming in both periods of life and thus save to consume in old age. The monetary authority increases (decreases) the money supply with stochastic proportional transfers. Assume the money transfers are iid. There is no other uncertainty in the model. i. Show there exists a SREE in which money is neutral. ii. Does there exist a SREE in which prices are proportional to the inherited money supply and do not depend on money transfers within a period? iii. How would you modify this model to illustrate the effects of changes in the money supply on saving along the lines of Lucas’s paper?
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This note was uploaded on 08/06/2008 for the course ECON 387 taught by Professor Corbae during the Spring '07 term at University of Texas at Austin.

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