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Consider a version of the economic model in which the money growth rate is a random variable. Let the probabilityr be 4/5 that a; =

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Consider a version of the economic model in which the money growth rate is a random variable. Let the probabilityr be 4/5 that a; = 1 and the probability be 1f5 that a = 2. The realization of the monetary policyr (the realized value of z, :1 is kept secret from the young until all purchases have occurred that is. people do not learn III, until period t is over. Prices are only thing directly observable by the young. Let 3(pg) = 5 +0219: in island i at time t. (a) Solve for p; using the market clearing condition. (b) lSan the worker make use of this price level as an indicator of the unknown monetary policy? (c) How can the workers make use of the price obtained in part a to decide on their work decision

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