term 1 lecture 2 - money in utility Flashcards
1
Q
what does instantaneous utility depend on?
A
instantaneous utility depends on real money and consumption
2
Q
what is the opportunity cost of holding money?
A
- 1) consumption
- 2) Investment with a positive return in the
next period
3
Q
what is the household budget constraint?
A
B_1+M_1+P_1C_1 = M_0 + B_0(1+i_0) + Y_1 where B is bonds, i is the nominal interest rate, M is the money as cash, Y is income
4
Q
what is the equation for income?
A
Y=W+Tr where W is wage and Tr is transfers from government
5
Q
what is the long time horizion objective?
A
