Economics 406Assignment 4Winter 2021INSTRUCTIONS: PLEASE READ BEFORE YOU STARTAnswer all the questions as completely as possible. The assignment is due on Wednesday April7 at midnight EST. This assignment is worth 12.5% of your grade.1. Consider the following Money-in-Utility model where the utility function is given by:U = Et∞ X t=0βt [ln(ψct) + ln(ηmt)] (1)The budget … Continue reading “Money-in-Utility model | My Assignment Tutor”
Economics 406Assignment 4Winter 2021INSTRUCTIONS: PLEASE READ BEFORE YOU STARTAnswer all the questions as completely as possible. The assignment is due on Wednesday April7 at midnight EST. This assignment is worth 12.5% of your grade.1. Consider the following Money-in-Utility model where the utility function is given by:U = Et∞ X t=0βt [ln(ψct) + ln(ηmt)] (1)The budget constraint is given by:ct + mt + xt + bt = f(kt-1) + τt + mt-1 1 + πt1 + πt+(2) (1 + it-1)bt-1where ct denotes real consumption in period t, mt = MPtt real money balances where Mt isnominal money at time t and Pt is the price level at time t, bt the amount of bonds at time t, xtinvestment, kt the capital stock, τt is a real lump-sum transfer from the government and πt is therate of inflation.The capital stock kt evolves according to:kt = xt + (1 – δ)kt-1, 0
