John is in his working period and is saving for his retirement period. Depict
his current equilibrium inter-temporal optimization plan. John now becomes
convinced that current Federal Reserve monetary policy will cause price in
and that consumption will cost more in his retirement period.
(a) What eect does this new belief have on his current period behavior.
(b) An increase in second period prices would increase the current period
value of John's second period endowment. Does this play any role
in your analysis? Explain.
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