Suppose the monetary authority prints fiat money at the rate z but now does not distribute the newly printed money as a lump-sum subsidy. Instead, the government distributes the newly printed money by giving each old personnew dollars for each dollar acquired when young. Assume that there is a constant population of people endowed only when young.

(a)Use the government budget constraint to findas a function of z.

(b) Find the individual's budget constraints to when young and old. Combine them to form the individual's lifetime budget constraint.

(c) Explain why the rate of return to fiat money is no longer given by just vt+1/vt