Consider the economy in chapter 10. You are given an economy with 500 workers born each period. Income is received and young and nothing when old. There are 200 young workers whose income is equal to 2,000 units of the consumption good. For the remaining 300 workers, each receives income equal to 500 units of the consumption good when young. High-income workers save 1,000 units of the consumption good when young. Low-income workers save 100 units of the consumption good when young. Let the gross real return on capital be 1.5. The money supply is constant. The young worker can either deposit goods into a bank, or acquire fiat money to purchase consumption goods when old. If the young person deposits goods in the bank, it costs 20 units of the consumption good to withdraw.

a. What is the gross real return on money?

b. Compute the gross return to deposits be for the high-income worker if they deposited savings into the bank.

c. Compute the gross return to deposits for the low-income worker if they deposited savings into the bank.

d. Based on your answers to parts b) and c), compute the aggregate quantity of capital acquired by the bank on behalf of all the depositors.

e. Compute aggregate GDP in this economy.

f. Suppose the central bank implemented a policy in which the money stock increased at a 20 percent rate each period. Would the aggregate quantity of deposits change in this model economy?