Unformatted text preview: constraint. b Assume that the agent needs to carry money from ﬁrst period to the second period to ﬁnance his consumption in the second period, i.e. cashinadvance constraint has to hold: P t +1 C t +1 = M t . Using the cashinadvance constraint and lifetime budget constraint, derive the expression for the nominal money demand of the young agent at time t and his consumption at time t + 1 . c Assuming that the consumers utility function is given by U ( c t +1 ,N t ) = c tN 2 t . Solve for the consumer’s optimal labor supply at time t and consumption at time t +1. How does the consumer’s optimal labor and consumption choice depend on the level of price level and the inﬂation rate? 1...
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 Fall '08
 KURUSCU
 Economics, Macroeconomics, Inflation, Consumer, ﬁrst period

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