Question: 11 Appendix Exercise 2.7. Suppose utility equals In(c1,t) + B In(c2,t+1) where In(c) represents the natural logarithm of c, whose derivative equals 1/c. The parameter

11 Appendix Exercise 2.7. Suppose utility equals In(c1,t) + B In(c2,t+1) where In(c) represents the natural logarithm of c, whose derivative equals 1/c. The parameter 3 is a positive number. a. Prove that real money balances are By q" = 1 + 8' b. Derive expressions for the lifetime consumption pattern Ci, and C2, t+ 1 . c. What effect does an increase in 8 have on real money balances and the lifetime consumption pattern? Give an intuitive interpretation of the parameter 3

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