### Derive and compare demand curve

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##### Reference no: EM1322

a) Johnny consumes peanuts (x1) and a composite good (x2). His utility function is U = x1x2. His marginal utilities are MU1 = x2 and MU2 = x1. Johnny's budget is \$20 and the price of the composite good is \$1. Derive Johnny's demand function for peanuts.

b) Ambrose consumes peanuts (x1) and a composite good (x2).He has a utility functionU = 4 x1 + x2. This means his MU1 = 2/√x1 and his MU2 = 1 . The price of the composite good is p2 = 1. His budget is \$20 per month. Derive Ambrose's demand function for peanuts. How does it compare with Johnny's demand curve for peanuts?

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Describe the present economic crisis situation in Europe.  Why has it been so difficult for the Europeans to find a solution to this problem?   Comment on what implications the crisis may have for the rest of the world if Europeans are not able to ag..

#### In using the taylor rule

In using the Taylor Rule as a guideline for monetary policy, what are the pros and cons of using forecasted values of inflation and output rather than observed values of these variables?

#### Inflation targeting be a good policy

Why might it be difficult for the Fed to formally adopt inflation targeting?  Would inflation targeting be a good policy for the Fed in the present economic environment

#### Long-term federal government budget problems

Question:. Explain why there are long-term Federal government budget problems. Explain why the base-line forecast of the CBO is misleading.