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1. (30 points) Denote by q5(ct,i,g) the real money demand function. Here you will generate particular functional forms for u(ct, %') using the MIU model
1. (30 points) Denote by q5(ct,i,g) the real money demand function. Here you will generate particular functional forms for u(ct, %') using the MIU model we have studied. In an MIU model, recall that the consumption-money optimality condition can be expressed as umt it um 1-bit- where umt denotes marginal utility with respect to real money balances and act denotes marginal utility with respect to consumption. In each of the following, you are given a utility function and its associated marginal utility functions. For each case, construct the consumption-money optimality condition and use it to generate the function q5(-.) In each case, your money demand function should end up being a function of 0,5 and it. (Note: Be careful to make the distinction between real money holdings and nominal money holdings. The marginal utility function am is marginal utility with respect to real money holdings.) a. u(ct, ?) = ln(ct) + ln(?i) b. u(ct, %) = c?(%)1'\
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