Briefly explain why money demand is increasing in income and decreasing in the interest rate. Find the equilibrium values of the interest rate, income, and government deficit. Be sure to label the curves and their intersection. Now assume that consumers become nervous about the future causing autonomous consumption to drop below 200. 5. Please give a brief explanation of your reasoning.
Consumers work in the first two periods and retire in the last one.
Inflation and expected inflation are zero, and the real interest rate is also zero. Suppose there are N people born each period. Compute the financial wealth of people at the beginning of the first period of life, of the second period of life, of the third period of life. Remember that people can be in debt, so financial wealth can be negative. Suppose now that restrictions on borrowing do not allow young consumers to borrow.