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Suppose in an economy utility function is given by: ln(c 1,t ) + b ln(c 2,t+1 ) where, b is a positive parameter . Given
Suppose in an economy utility function is given by:
ln(c1,t) + b ln(c2,t+1) where, b is a positive parameter. Given the young person's real demand for money is
(a) Prove that real money balances is given by: q =by/(1 + b). SHOW YOUR STEPS.
(b) Derive expressions for the lifetime consumption pattern: SHOW YOUR STEPS.
(c)What effects does an increase in b have on real money balances and the lifetime consumption pattern? Give an intuitive interpretation of the parameter b.
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