Department of Economics
Faculty of Liberal Arts and Professional Studies
Monetary Economics II: Theory and Policy
Professor Tasso Adamopoulos
Problem Set 4
1. Chapter 13: Ex. 13.2, p.253.
2. Chapter 14: Ex. 14.1, 14.2, p.265.
The Eect of the National
Debt on Capital and Savings
Example 15.1 Since wealth for an individual born at t is equal to (where r = x)
wt = y1 1,t +
we can calculate a change in wealth for changes in endowments and
In period 5, the government budget constraint is
N g5 + rN b4 = N 5 + v5 [M5 M4 ] + N b5
N g5 + (1.2)(5956) = N 5 + v5 [M5 M4 ] + N b5
N g5 + 7, 147.2 = N 5 + v5 [M5 M4 ] + N b5 .
If the level of government expenditures remains at 4,500, the budget