Question 4 - The payments system (10 points). Suppose the old bankers in the central island own $5, 000, 000 of fiat money and creditors are owed $7, 500, 000.

1. Compute the price at which creditors will be able to sell the debt they own.

2. How much interest will a bank be willing to pay after the the debtors have arrived in order to have one more dollar of fiat money?

3. Suppose the central bank is willing to purchase $2, 000, 000 worth of debt. What will the price of debt be in that case?

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