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Consider an economy in which there are100workers. One-half of the workers are endowed with200units of the consumption good when young and nothing when old. The
Consider an economy in which there are100workers. One-half of the workers are endowed with200units of the consumption good when young and nothing when old. The remaining workers are endowed with20units of the consumption good when young and nothing when old. Each worker saves30percent of their endowment when young. Let the gross real return on capital be1.25. Money supply grows according to the following rule:Mt= 1.1Mt1. There is a xed cost of accessing the gross interest on deposits equal to10units of the consumption good (i.e.= 10).
- (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?
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