Question
Consider a model economy in which each young person receives 200 units of the consumption good. There are 50 young people born in each period.
Consider a model economy in which each young person receives 200 units of the consumption good. There are 50 young people born in each period. The total stock of fiat money is constant and equal to $10,000. Suppose each person's preferences are such that they only want to consume when old. We assume the probability that a person moves is 10 percent. The gross return on capital is 1.10. A bank accepts deposits from all young people.
a. Write down the money market-clearing condition for this economy?
b. Compute the equilibrium value of money for this economy.
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