MACROECONOMICS
10th Edition
ISBN: 9781319106072
Author: Mankiw
Publisher: MAC HIGHER
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Chapter 4, Problem 5QQ
To determine
The changes on the bank’s assets and capital due to the leverage effect.
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Problem 2. If the consumer preference can be represented by a CES function with δ = 0.5, i.e. u(x, y) = x0.5 + y0.5. Let the prices and income be (px, py, w).
1. Set up the Lagrangian expression.2. Take the first-order conditions.3. Substitute into budget constraint to derive the optimal consumption bundles.
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