Answer Happy

Question 1.
Consider an inflation-targeting interest rate rule.
Explain/interpret the role of the pa
rameter attached to inflation (and provide a formal
analysis).
Question 2.
Consider a small open economy which trades in financial assets
and a homogeneous good
(an endowment economy). Provide an interpretation for the
following flow budget con
straint, Bt+1 (1 + r)
Bt = Yt Ct .
Derive the lifetime budget constraint (for t = 1,
2).
Lifetime utility is given by, ln(C1) + β
ln(C2). Derive the consumption Euler equation
and provide an interpretation.