1 Assume that instead of the above government run savings account we have government regulation that requires the household to deposit a fraction d of his balances in a savings account that does not pay any interest. The Bellman equation for this case is:

Derive the first order conditions for this problem. What is z = V in this case?

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V(m) Ex{[(1 d)m + x]/p(x) + max-v(L) + BV[(dm + p(x)L)/(1+x)]}. L