In the OLG framework, assume that the economy has N persons born each period, each person lives two periods, each young person supplies one unit of labor and saves a constant proportion of income. The old do not supply labor, nor do they save. During each period the economy’s saving can be held in physical capital, which can be bought at the end of the young lifestage and lasts only one period (i.e. during the old lifestage), or fiat money. The economy has the production function:

y = f (k) = Akα 0<α<1 where k is the capital/labor ratio. Derive the economy’s steady-state output, saving, the capital stock and the demand for money functions. (Specify any additional assumptions that you need to make.) Is money neutral in this model?