Assume that people face a lump-sum tax of T goods when old and a rate

of expansion of the at money supply of z > 1. The tax and the expansion of the at

money stock are used to finance government purchases of g goods per young person in

every period. There are N people in every generation.

(a) Find the individual's budget constraints when young and when old. Combine them

to form the individual's lifetime budget constraint and graph this constraint.

(b) Find the government's budget constraint.

(c) Graph together the feasible set and the stationary monetary equilibrium.

(d) Find the stationary monetary equilibrium when z = 1 and add it to the graph in

part (c).

(e) Graph to compare the real balances of at money when z > 1

to the values when z = 1.