THE DEMAND FOR MONEY
167
the nominal interest rate. Hence, the present discounted value of the second-
period budget constraint is
P
2
Y
2
______
(1
+
i
1
)
+
B
1
______
(1
+
i
1
)
=
P
2
C
2
______
(1
+
i
1
)
-
M
1
______
(1
+
i
1
)
-
B
1
________
(1
+
i
1
)
i
1
(6.11)
Adding together Eqs. (6.9) and (6.11) gives us:
(
P
1
Y
1
)
+
P
2
Y
2
______
(1
+
i
1
)
+
B
1
______
(1
+
i
1
)
=
(
P
1
C
1
+
M
1
+
B
1
__
i
1
)
+
P
2
C
2
______
(1
+
i
1
)
-
M
1
______
(1
+
i
1
)
-
B
1
________
(1
+
i
1
)
i
1
where on substituting the ...
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