Consider an economy in which each person is endowed with 1,000 goods when young and nothing when old. Each young is indifferent between holding fiat money or bank money. When young, each person wants to consume 600 goods. The central bank pays interest on reserves equal to the net return on its capital holdings. Suppose x= 1.25

1. If each person divides savings equally between fiat money and bank deposits, use the individual budget constraint when young to compute the holdings of real fiat money balances.

2. Use the answers dervied from part a. Compute the consumption of an individual when old.

3. Suppose each young person holds $100 and compute the value of fiat money.