What condition represents the clearing of the money market

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Question - Suppose people in the economy have constant marginal rate of substitution for consumption when young and consumption when old. Further, assume a constant population of N=10. Each person is endowed with y=2 when young and nothing when old. Finally, suppose the initial old are endowed with a total of M=10 units of fiat money.

a) Depict some indifference curves

b) Write down equations that represent constraints on first and second period consumption for a typical person. Combine these constraints into a lifetime budget constraint.

c) What condition represents the clearing of the money market in an arbitrary period tt. Use this condition to find the real return of fiat money.

d) Find the value of money in period tt for marginal rate of substitution of 0.5 and 1.5.

Reference no: EM133165778

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