2. Consider the stationary equilibrium of the overlapping generations model with commodity money. Assume the population is constant. a) Characterize the equilibrium of the commodity money market and explain possible outcomes when the supply of commodity money doubles. b) Explain why replacing commodity money with fiat money is a Pareto improvement. c) Explain why it is impossible for a growing economy to simultaneously have constant money supply and constant nominal prices. Then discuss why maintaining constant prices in a growing economy is particularly difficult

2. Consider the stationary equilibrium of the overlapping generations model with commodity money. Assume the population is constant. a) Characterize the equilibrium of the commodity money market and explain possible outcomes when the supply of commodity money doubles. b) Explain why replacing commodity money with fiat money is a Pareto improvement. c) Explain why it is impossible for a growing economy to simultaneously have constant money supply and constant nominal prices. Then discuss why maintaining constant prices in a growing economy is particularly difficult

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

2. Consider the stationary equilibrium of the overlapping generations model with
commodity money. Assume the population is constant.
a) Characterize the equilibrium of the commodity money market and explain
possible outcomes when the supply of commodity money doubles.
b) Explain why replacing commodity money with fiat money is a Pareto
improvement.
c) Explain why it is impossible for a growing economy to simultaneously have a
constant money supply and constant nominal prices. Then discuss why
maintaining constant prices in a growing economy is particularly difficult
under a commodity money system.

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