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Unformatted text preview: period. Pro f ts are zero. a Write down the f rst period and second period budget constraint of the agent and derive his lifetime budget constraint. b Assume that the agent needs to carry money from f rst period to the second period to f nance his consumption in the second period, i.e. cash-in-advance constraint has to hold: P t +1 C t +1 = M t +1 . Plus also assume that C t = 0 so that the agent does not need to consume anything in the f rst period. Using the cash-in-advance constraint, C t = 0 , 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 . 1...
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- Fall '08