1. Consider an economy that is accurately reected by the Money in Utility model that was introduced in Chapter 6. The nominal money suppy increases at a rate of 7:, with M: = {1+y1)Mt_1. Assume that in this economy, prices and wages adjust instanteously to changes in the nominal money supply. Therefore, Pr = (1 + 7034, and W} = {1 +11)Wt_1. By design, the rate of ination is W: = 1':- All other aspects of this model [utility function, budget constraint, etc) are identical to the versions that were covered in lecture. We end up with: i. An Euler Equation that is given by (Carl )3 : will)\" - 1 ii. A nancial market equilibrium condition given by %' = Y, (IJF\")? iii. Consumption is given by C; = Y, or C; = F (Lt) Imagine that historically y: = r. That is, there has been a constant rate of increase in the nominal money supply. a) Write the Euler Equation as a function of yr 2 f}. (8 points)