Consider a model economy in which each young person receives 200 units of the consumption good. There are 50 young people born each period. The total stock of fiat money is constant and equal to $10,000. Suppose a person's preferences are such that they only want to consume when old and they dislike risk. We assume the probability that a person moves is 10 percent. The gross return on capital is 1.10. A bank accepts deposits from all young people. a. What is the state contingent rate of return oşered by banks on deposits? b. Write down the money market-clearing condition for this economy. c. Compute the equilibrium value of money for this economy. [Champ, Bruce/Freeman, Scott/Haslag, Joseph. Modeling Monetary Economies]

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Consider a model economy in which each
young person receives 200 units of the
consumption good. There are 50 young
people born each period. The total stock of
fiat money is constant and equal to $10,00.
Suppose a person's preferences are such that
they only want to consume when old and
they dislike risk. We assume the probability
that a person moves is 10 percent. The gross
return on capital is 1.10. A bank accepts
deposits from all young people.
a. What is the state contingent rate of return
oşered by banks on deposits?
b. Write down the money market-clearing
condition for this economy.
c. Compute the equilibrium value of money
for this economy.
[Champ, Bruce/Freeman, Scott/Haslag,
Joseph. Modeling Monetary Economies]
Transcribed Image Text:Consider a model economy in which each young person receives 200 units of the consumption good. There are 50 young people born each period. The total stock of fiat money is constant and equal to $10,00. Suppose a person's preferences are such that they only want to consume when old and they dislike risk. We assume the probability that a person moves is 10 percent. The gross return on capital is 1.10. A bank accepts deposits from all young people. a. What is the state contingent rate of return oşered by banks on deposits? b. Write down the money market-clearing condition for this economy. c. Compute the equilibrium value of money for this economy. [Champ, Bruce/Freeman, Scott/Haslag, Joseph. Modeling Monetary Economies]
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