Consider an economy in which there is a morning period and an afternoon period. There are 100 debtors and 100 creditors born each period. When old, one of the debtors arrives in the morning. Before the afternoon starts, 75 percent of the creditors must leave. Each creditor loans 100 units of the consumption good to debtors when young. There is a fixed amount of fiat money equal to $20,000.
a. How much money did the morning-arriving debtors bring to the island?
b. At what price would the IOUs held by morning-leaving creditors sell?