2010SPRING-HW3 - in the second period, i.e. cash-in-advance...

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ECO 320L-HW3 Due April 29, 2010 Classtime 1. Problems 2 and 3 from chapter 9. 2. Questions for review 5, and 7 from chapter 10. 3. Problem 4 from chapter 13. 4. Consider a monetary intertemporal model where individuals live for 2 periods: young ( t ) and old ( t + 1). In addition to money there is a riskless bond which pays a nominal interest rate R . The consumer works ( N t hours) in the first period of life and consumes ( C t +1 ) consumption good in the second period. The real wage in the first period is w t . The nominal prices of consumption good are P t and P t +1 . Let M t and B t are nominal money and bond holdings a young agent carries from time t to t + 1. Profits are zero. a Write down the first period and second period budget constraint of the consumer. b Assume that the agent needs to carry money from first period to the second period to finance his consumption
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Unformatted text preview: in the second period, i.e. cash-in-advance constraint has to hold. Write the cash-in-advance constraint for the consumer. 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 Now consider in addition , that the consumer likes to consume C * t +1 foreign goods in the second period. As a result, he needs to buy foreign currency in the rst period and carry into the second period. Let M * t be the nominal foreign currency holdings of the consumer (in units of foreign currency), P * t be the foreign price level, and e t be the exchange rate. Write down the rst period and second period budget constraint, and cash-in-advance constraint of the consumer. 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.

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