ps11macro2sp08ans

# ps11macro2sp08ans - Econ 387L MacroII Spring 2008...

This preview shows pages 1–2. Sign up to view the full content.

Econ 387L: MacroII Spring 2008, University of Texas at Austin Instructor : Dean Corbae Unpleasant Monetarist Arithmetic (a) The nominal budget constraint: p t c t + p t q t B t +1 + M t +1 + p t τ t p t n t + B t + M t Expressed in real terms this budget constraint becomes c t + q t p t +1 b t +1 + p t +1 p t m t +1 + τ t n t + b t + m t . (1) where b t = B t /p t and m t = M t /p t (b) The real CIA is given as c t m t (2) In nominal terms this constraint is p t c t M t (c) The government budget constraint in nominal terms is p t τ t + p t q t B t +1 + ¡ M t +1 M t ¢ p t g + B t In real terms, we get the following τ t + q t p t +1 b t +1 + μ p t +1 m t +1 p t m t g + b t (3) (d) A competitive equilibrium for the economy described above consists of sequences of prices { p t , q t } t 0 and quantities { c t , n t , b t , m t , τ t } t 0 such that i. given { p t , q t , τ t } t 0 household solves max { c t ,n t ,b t ,m t } t 0 X β t u ( c t , n t ) s.t. ( 1 ) , ( 2 ) , n t [0 , 1] m t +1 , b t +1 0 , t ii. given g , the government maintains balanced budget, i.e ( 3 ) holds with = , t .

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern