2. Consider the deterministic Bewley model. There is an infinite time horizon and one good at each date. There are two a

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2 Consider The Deterministic Bewley Model There Is An Infinite Time Horizon And One Good At Each Date There Are Two A 1 (114.22 KiB) Viewed 102 times

2. Consider the deterministic Bewley model. There is an infinite time horizon and one good at each date. There are two agents, i = A, B, who evaluate consumption according to the function Σο β'. where > 0 denotes i's consumption of the good at date t. Endowments are given by the streams wa = (4, 1,4, 1, ...) and we (1,4, 1,4, ...). There is one unit of fiat money owned initially by B. (Cit = Xit = (a) Let B V2/3. Find a monetary equilibrium allocation. Make sure that you verify all the first order conditions. [75%] = (b) Let B = 1/2. Is the analogue of the allocation you found in part (a) still a monetary equilibrium? Provide a brief explanation of your answer. (25%)