Question
Consider an economy in which there are 100 workers. One-half of the workers are endowed with 200 units of the consumption good when young and
Consider an economy in which there are 100 workers. One-half of the workers are endowed with 200 units of the consumption good when young and nothing when old. The remaining workers are endowed with 20 units of the consumption good when young and nothing when old. Each worker saves 30% of their endowment when young. Let the gross real return on capital be 1.25. Money supply grows according to the following rule Mt=1.1Mt-1. Assume that each worker use 10 goods to identify themself and make a withdrawal from a bank.
a. For the high income worker, compute the return on deposits.
b. For the high income worker, compute the return on money.
c. For the low income worker, compute the return on deposits.
d.For the low income worker, compute the return on money.
e. Based on the answers to part a through d, what store of value should a high income worker choose? A low income worker?
Please show as much work as possible, Thanks!!
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started