Consider an economy in which each generation is composed ofN = 10,000individuals. The fiat money supply changes according toMt= 2 Mt-1. Initially, the stock of money is given to the old,M0= 1,000. Each period, thenewly printed money is given to the oldof that period as a lump-sum transfer (subsidy). Each young person is endowed withy=10units of the consumption good. The old have no endowment. Preferences are such thatindividuals wish to save 5 units of endowment when youngat the equilibrium rate of return on fiat money.

(a) What is the gross real rate of return on fiat money in this economy?

(b) How many goods does an individual receive as a subsidy?

(c) What is the price of the consumption goods in period 1, p1, in dollars?