Consider an OLG model in which consumers live for 2 periods. Consumers have a lo
ID: 1228895 • Letter: C
Question
Consider an OLG model in which consumers live for 2 periods. Consumers have a log utility function given by U(e1, e2) = log(e1) + beta log(e2), Consumers receive endowment y in terms of consumption good when they are young, and nothing when they are odd. Do note the number of people born in period t ns Nt. That the population growth rate is n (i.e., Nt+1 = nN t, ). Assume that the consumption good is non storable. Assume that the money supply in period t is denoted by. Assume that money supply grows at rate z (i.e., M t+1 = zMt). Now assume in addition to fint money, there are two assets, A and B. The real rate of return on Asset B is uncertain, and depends on which event occurs in the second period, as summarized in the following table: Also assume that n = 2 and z = 1. Given the utility function, which of the following statements are always true about consumer's preference? Consumer's utility is strictly increasing in consumption today and consumption tomorrow. Consumers prefer a combination of consumption today and consumption tomorrow to only consumption today and nothing tomorrow. Consumers are risk averse. All of the above. None of the above choices. Which of the following statements are true? Consumers strictly prefer asset A to asset B and fiat money. Consumers strictly prefer fiat money to asset A. Fiat money and asset A are perfect substitutes. Consumers might invest in asset B. None of the above.Explanation / Answer
A) d
B) a,b,c