PartA Chapter review questionsQUESTION 1In chapter 1 and 2, we modeled growth in an economy by a growing population. We could also achieve agrowing economy by having and endowment that increases over time. To see this, consider the followingeconomy: Let the number of young people born in each period be constant at N. There is a constant stockof fiat money, M. Each young person born in period t is endowed with y units of the consumption goodwhen young and nothing when old. The individual endowment grows over time so that yt- ayt-1 wherea> 1. For simplicity, assume that in each period t, individuals desire to hold real money balances equal toone-half of their endowment, so that vimt=yt/2.YtPART A:1.Write down equations that represent the constraints on first and second-period consumption for atypical individual. Show your steps.ii) Combine these constraints into a lifetime budget constraint. Show your steps.iii) Draw the budget set together with arbitrarily located but correctly shaped indifference curveson a well labeled graph and point out the equilibrium of this decentralized monetary economy.PART B:Write down the condition that represents the clearing of the money market in an arbitrary period t. Usethis condition to find the real rate of return of fiat money in a monetary equilibrium. Explain the path overtime of the value of fiat money. Show all your steps and explain your answers to avoid grade penalty.11.FEAT111.

There are two periods : Young & Old Here we represent , Young period by t and old period as…

Chapter review questions QUESTION 1 In chapter 1 and 2, we modeled growth in an economy by a growing population. We could also achieve a growing economy by having and endowment that increases over time. To see this, consider the following economy: Let the number of young people born in each period be constant at N. There is a constant stock of fiat money, M. Each young person born in period t is endowed with y units of the consumption good when young and nothing when old. The individual endowment

Chapter review questions QUESTION 1 In chapter 1 and 2, we modeled growth in an economy by a growing population. We could also achieve a growing economy by having and endowment that increases over time. To see this, consider the following economy: Let the number of young people born in each period be constant at N. There is a constant stock of fiat money, M. Each young person born in period t is endowed with y units of the consumption good when young and nothing when old. The individual endowment

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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PartA

Chapter review questions
QUESTION 1
In chapter 1 and 2, we modeled growth in an economy by a growing population. We could also achieve a
growing economy by having and endowment that increases over time. To see this, consider the following
economy: Let the number of young people born in each period be constant at N. There is a constant stock
of fiat money, M. Each young person born in period t is endowed with y units of the consumption good
when young and nothing when old. The individual endowment grows over time so that yt- ayt-1 where
a> 1. For simplicity, assume that in each period t, individuals desire to hold real money balances equal to
one-half of their endowment, so that vimt=yt/2.
Yt
PART A:
1.
Write down equations that represent the constraints on first and second-period consumption for a
typical individual. Show your steps.
ii) Combine these constraints into a lifetime budget constraint. Show your steps.
iii) Draw the budget set together with arbitrarily located but correctly shaped indifference curves
on a well labeled graph and point out the equilibrium of this decentralized monetary economy.
PART B:
Write down the condition that represents the clearing of the money market in an arbitrary period t. Use
this condition to find the real rate of return of fiat money in a monetary equilibrium. Explain the path over
time of the value of fiat money. Show all your steps and explain your answers to avoid grade penalty.
11.
FEAT
111.

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