ps11macro2sp08ans - Econ 387L MacroII Spring 2008...

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

View Full Document Right Arrow Icon
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 .
Image of page 1

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

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    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.

    Student Picture

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

  • Left Quote Icon

    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.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    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.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern