The next three questions involve the following equation, which summarizes the quantity theory of money in an overlapping generations model:

pt = Mt Nt(yt c1)

1. Consider an economy with a constant population, in which the endowment grows at a rate of > 1 per year, so that yt = yt1. The money supply grows at a rate of z > 1. First-period consumption is zero. What is this economys rate of inflation?

(A) z .

(B) z.

(C) z .

(D) z .

2. Instead, consider an economy in which c1 = yt , and in which money supply and population are constant. What is the real value of this economys money?

(A) .

(B) 0.

(C) yt .

(D)

3. Now consider an economy in which the population, endowment, and consumption are constant. The initial money supply is M0 > 0, and in each period, the government takes a portion, < 1 of the money stock out of existence, so that Mt = Mt1. Suppose that = 0.8. How many periods does it take for the money stock to become less than M0 2 ?

(A) 1.

(B) 2.

(C) 3.

(D) 4