Consider two identical countries in our standard OLG model. In each country the population of every generation is 100 and each young person wants money balances worth 10 goods. There are $400 of country a money and 100 of country b money. The exchange rate is fixed at 1. There are NO foreign currency controls and the monetary authorities do NOT cooperate.

1. a)What is the value (in goods) of a dollar? Of a pound? (10 pts)
2. b)Find the value of a dollar if people abandon the use of the pound and the value of a pound if people abandon the use of the dollar. (10 pts)
3. c)Bonus: To be free from what is called a "speculative attack", a country's commitment to maintain the exchange rate must be sufficient to purchase all of its own currency if it is offered for foreign exchange (to its own monetary authority). Suppose that each country is willing to raise up to 500 in taxes (in real terms) on their old citizens in order to maintain the