Question
Suppose there are two islands. The total population on the two islands is 500 people. The initial stock of fiat money is $500. The money
Suppose there are two islands. The total population on the two islands is 500 people. The initial stock of fiat money is $500. The money stock increases according to Mi 1.1M-1. The probability that a person is on Island 1 is 1/4 and the probability that a person is on Island 2 is 3/4. let I(p)=4 (so that labor supply does not depend on pricc) old and young population 500 . a. Write down the money market-clearing condition for each island. b. Solve for the equilibrium price level in date 1. c. Write down the per-person transfer that the government gives to each old person. d. Compute the value of the transfer.
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