Money and banking econ class.

Consider a commodity-money economy like the one described in class. There are 100 identical people in every generation. Each person is endowed with 15 units of the consumption good when young and nothing when old. Assume that each young person wishes to consume 2/ 3 of their endowment when still young, regardless of the rate of return on money. The initial old own a total of 100 units of gold. Assume that people are indi'erent between consuming 1 unit of gold or 1 unit of the consumption good. a) Suppose the initial old choose to use their gold as money rather than con- sume it. Write an equation that represents the market clearing condition for gold. Use it to nd the trading value of gold of? . b) At this value of gold, will the initial old actually choose to consume any of their gold? Why? I ' c) Calculate the rate of return on gold. d) Dene the quantity theory of money and the neutrality of money (in terms of the initial stock of gold). Do any of them hold under the current example? Explain. ' e) Now assume that the initial stock of gold is multiplied by a factor of 1:. What is the maximum allowable value of k for which money is still neutral (that is, compared to our starting point)? How about the minimum value? Show your work. ' f) What is the value of k for which each of the intial old consume 2 units of gold? Show your work