Budget constraints when young and old.

1. Budget constraints when young and old.

At any single period, any island can have the largest populations of young people. Fiat grows according to  implies that any rational individual can determine the current money stock.

The choice of labor is

The demand for young people is represented by the equation:

The Lucas model assumes that young individuals are assumed to have a young time represented by y. Time can be used in either leisure or as labor. Leisure is represented by. The choice of labor will be  where is the price of goods on the island i. A unit of labor produces a unit of goods. The budget constraint for young people then becomes:

Let any person have an active life of t years. When old, the difference between the age of the young is y-n. The budget constraint for old people can thus be represented by the equation below

1. The number of young people on the island

The demand for fiat money for each person at any given time is:

The total demand for fiat money is

The old people are equally distributed ignoring their islands of birth. The money stock is divided equally among the two islands.

Let the real supply of money = t,

The marketing conditions can be represented by the equation:

1. Assume that XA and XB denote prices of goods at time T. when the population is small and

The question on the marketing conditions can be written as,

On island A

On island b

Assuming that, it implies that when the population is low the price of goods is high.

Island A would be the most preferred island. The prices of goods increase due to the scarcity of young people working to produce goods. When the population on an island is low, people tend to work more in order to bring prices of goods down, and thus the rate of return of labor increases.

1. Rate of return when the money stock is higher in both this period and the next. An increasing the money stock raises M_t and M_t+1 by the same portion. This fails to capture the prices of goods at any one moment. This implies that an increase in the prices of goods as a result of an increase in money stock does not affect the rate of return of labor and desire to work.

As z increases,  decreases and the rate of work falls implying that the money earned now is taxed.

1. Agents with information on all variables can visit all the states. The states are exogenous and endogenous. In the exogenous state, external factors are considered in the model. In the endogenous state, the scope is smaller and external factors are not considered.
2. The agents would only have the option to visit the endogenous state. This is because the data agents have a small amount of information that cannot be reliable for expansion.

There exists a relationship between money and creation output. Workers work in order to get money to use to purchase goods. This creates a cycle that can only be sustained by the money hence a relationship exists.

1. The graph will not be the same. Inflation is likely to increase the prices of commodities which in turn implies that workers have to work hard in order to decrease these prices or afford them. This implies that both creation and output will increase.