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The household's utility function is: u(c1, M1, c2) = log(c1) + 0log M1 P 1 + Blog(c2) The household's budget constraint in each period is:

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The household's utility function is: u(c1, M1, c2) = log(c1) + 0log M1 P 1 + Blog(c2) The household's budget constraint in each period is: Pict + Plai + M1 = Plyi - PITI P2c2 = P2yz + Patz + Mi+ (1 +i)Pal1)) {ll} points, moderate) Note that the honshold has a utility from money that takes the form , Mt _ M; We can derive money demand by using the following condition (you don't need to reproye this, but it becomes evident from setting up the honsehoid's Lagrangi'rm): (II)! Ail-fl i .!( ) = 11'. C . ' P1 1 + 1 ' where 1511(0) = log(c). Solve for money demand (1%) in terms of cl

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