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Unformatted text preview: constraint. b Assume that the agent needs to carry money from rst period to the second period to nance his consumption in the second period, i.e. cash-in-advance constraint has to hold: P t +1 C t +1 = M t . Using the cash-in-advance 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 t-N 2 t . Solve for the consumers optimal labor supply at time t and consumption at time t +1. How does the consumers optimal labor and consumption choice depend on the level of price level and the ination rate? 1...
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This note was uploaded on 02/04/2011 for the course ECON 320L taught by Professor Kuruscu during the Fall '08 term at University of Texas at Austin.
- Fall '08