Feasible set for economy and hypothetical optimal bundle

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Reference no: EM131392136

Consider, an economy, of 2 period households, with a growing population in which each person is endowed with y1 units of consumption when young, and y2 units when old. Assume that y2 is still sufficiently small that the households will still want to consume more than y2 units when old.

1. Find the feasible set for this economy.

2. Draw the feasible set for this economy and hypothetical optimal bundle for this economy.

3. Turning now to a monetary economy, find the equation representing the inequality of supply and demand for money.

4. Assume that we have a stationary economy with a constant money supply. Use the equation in part 3 to find vt+1 vt .

5. Draw the budget set for an individual in the monetary equilibrium. Does this monetary equilibrium maximize the utility of the households? Explain.

Reference no: EM131392136

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