Homework Help is Here – Start Your Trial Now!
Business
Economics
a. In what sense in capital illiquid in this economy? Is fiat money subject to this same liquidity problem? b. Describe an intermediary that might overcome the illiquidity of capital so that intermediated capital may be used to acquire consumption in the second period of life. c. Suppose there is only one person in each generation who is able to run an intermediary. What is the minimum rate of return that person must offer to attract the depositors? For what values of x can this individual make a profit? d. What rate of return will be offered on deposits if many people in each generation able to run an intermediary?

a. In what sense in capital illiquid in this economy? Is fiat money subject to this same liquidity problem? b. Describe an intermediary that might overcome the illiquidity of capital so that intermediated capital may be used to acquire consumption in the second period of life. c. Suppose there is only one person in each generation who is able to run an intermediary. What is the minimum rate of return that person must offer to attract the depositors? For what values of x can this individual make a profit? d. What rate of return will be offered on deposits if many people in each generation able to run an intermediary?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter5: Business And Economic Forecasting
Section: Chapter Questions
Problem 2E
See similar textbooks
icon
Related questions
Question
QUESTION 1 Consider an economy in which people live two-period lives in overlapping generations but are endowed only in the first period of life. Capital has a minimum size, k, which is greater than the endowment of any single individual but less than the total endowment of a single generation. Capital pays a one period gross real rate of return equal to x. The population grows 10 percent in each period. There exists a constant nominal stock of fiat money owned by the initial old. a. In what sense in capital illiquid in this economy? Is fiat money subject to this same liquidity problem? b. Describe an intermediary that might overcome the illiquidity of capital so that intermediated capital may be used to acquire consumption in the second period of life. c. Suppose there is only one person in each generation who is able to run an intermediary. What is the minimum rate of return that person must offer to attract the depositors? For what values of x can this individual make a profit? d. What rate of return will be offered on deposits if many people in each generation able to run an intermediary?
Transcribed Image Text:QUESTION 1 Consider an economy in which people live two-period lives in overlapping generations but are endowed only in the first period of life. Capital has a minimum size, k, which is greater than the endowment of any single individual but less than the total endowment of a single generation. Capital pays a one period gross real rate of return equal to x. The population grows 10 percent in each period. There exists a constant nominal stock of fiat money owned by the initial old. a. In what sense in capital illiquid in this economy? Is fiat money subject to this same liquidity problem? b. Describe an intermediary that might overcome the illiquidity of capital so that intermediated capital may be used to acquire consumption in the second period of life. c. Suppose there is only one person in each generation who is able to run an intermediary. What is the minimum rate of return that person must offer to attract the depositors? For what values of x can this individual make a profit? d. What rate of return will be offered on deposits if many people in each generation able to run an intermediary?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 6 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Bond
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Managerial Economics: Applications, Strategies an…
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
Microeconomics: Private and Public Choice (MindTa…
Microeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506893
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Economics: Private and Public Choice (MindTap Cou…
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Microeconomic Theory
Microeconomic Theory
Economics
ISBN:
9781337517942
Author:
NICHOLSON
Publisher:
Cengage
Principles of Economics 2e
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS