Econ 4721 HW 1 - Econ 4721: Money and Banking, Fall 2009...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Econ 4721: Money and Banking, Fall 2009 Homework 1 Answer Key Problem 1 (a) A feasible consumption allocation for this economy is two sequences, { c 1 ,t } and { c 2 ,t } for t = 1 , 2 ,... satisfying: N t c 1 ,t + N t- 1 c 2 ,t N t y 1 + N t- 1 y 2 Other acceptable conditions for feasibility, using the assumptions for this problem, Nc 1 ,t + Nc 2 ,t Ny 1 c 1 ,t + c 2 ,t y 1 Nc 1 ,t + Nc 2 ,t N * 30 c 1 ,t + c 2 ,t 30 (b) A Pareto efficient stationary allocation: 1. Is a stationary feasible allocation - two numbers ( c 1 ,c 2 ) satisfying c 1 + c 2 y 1 2. Has the property that no individual can be made better off without harming another individual. Or, solves the problem of maximizing the utility of each member of future generations subject to the feasibility constraint max c 1 ,c 2 ln( c 1 ) + ln( c 2 ) subject to: c 1 + c 2 y 1 1 (c) The Pareto efficient stationary allocation is found by solving the maximization problem, max c 1 ,c 2 ln( c 1 ) + ln( c 2 ) subject to: c 1 + c 2 y 1 The first order condition for this problem is: 1 c 1 c 2 = 1 So, c 2 = c 1 c 2 = y 1- c 1 c 1 = y 1- c 1 c 1 = y 1 1 + = 30 1 . 5 = 20 c 2 = y 1 1 + = . 5 * 30 1 . 5 = 30 3 = 10 (d) A competitive equilibrium without money must involve no trade. Consumers are not willing to exchange because the young cannot trade with the old. There is absence of double coincidence of wants. The old consumers want what the young have (consumptiondouble coincidence of wants....
View Full Document

This note was uploaded on 02/20/2010 for the course ECON 4721 taught by Professor Satoshitanaka during the Spring '10 term at University of Minnesota Duluth.

Page1 / 7

Econ 4721 HW 1 - Econ 4721: Money and Banking, Fall 2009...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online