Question: 8.9. Bubbles. Consider the setup of the previous problem without the assumption that lims Et [Pt +s/(1 + r) s ] = 0. (a) Deterministic

8.9. Bubbles. Consider the setup of the previous problem without the assumption that lims→∞ Et [Pt +s/(1 + r)

s ] = 0.

(a) Deterministic bubbles. Suppose that Pt equals the expression derived in part

(b) of Problem 8.8 plus (1 + r)

t

b, b > 0.

(i) Is consumers’ first-order condition derived in part

(a) of Problem 8.8 still satisfied?

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