We have 2 2 1 t t t t t m c i p i be careful with the

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, we have 2(1)tttttMciPi(be careful with the algebra here notice the squared terms in the solution). Thus, the function  function is 22(1),tttttcic ii, which is increasing in consumption and decreasing in the nominal interest rate, again as expected. c. 1,ttttttMMu ccPP, with 11ttcttMucPand (1)ttmttMucP. Solution: The consumption-money optimality condition is 11(/)1(/)1tmttttcttttucMPiucMPi. After combining exponents, we can write this as 11titttPicMi. Solving for /tMP, we have (1)tttttMciPi. Thus, the function  is (1)1,ttttcic ii.
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PS 7 Solutions | © Sanjay K. Chugh 3 2. The Keynesian-RBC-New Keynesian Evolution. Here you will briefly analyze aspects of the evolution in macroeconomic theory over the past 25 years. a.Describe briefly what the Lucas critique is and how/why it led to the demise of (old) Keynesian models.
b.Briefly define and describe the neutrality vs. nonneutrality debate surrounding monetary policy today. Which type of shock does this debate concern?

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