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Unformatted text preview: 1 = l t + n t + s t Firms: Firms produce output in competitive markets, using labor and capital, both of which are hired from households on spot markets. Firms have access to a typical neoclassical production function: f ( k t ; n t ) . The depreciation rate is < ² < 1 . Questions: . 1. De&ne a solution to the household problem. 2. De&ne a competitive equilibrium. Assume that the money supply is constant. 3. Is money neutral in this economy? Prove your answer using the system of equations that de&ne a competitive equilibrium. 4. Would money still be neutral if the transactions technology used nominal money balances i.e., s t = g ( c t ; M t ) ? Explain the intuition. You need not derive your answer. 1...
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This note was uploaded on 10/29/2009 for the course ECON 720 at UNC.