Unformatted text preview: (c) Suppose preferences are such that individuals wish to hold real balances of money worth y 1y 2 ( v t /v t +1 ) 2 1 + ( v t /v t +1 ) goods where v t is the value of money in period t . Calculate the value of money, v t . Calculate the price of consumption good in period t . (d) What is the restriction on the real rate of return of ﬁat money so that the demand for ﬁat money is positive (i.e. so that a monetary equilibrium exists.). Is this restriction satisﬁed (please see part b .)? (e) Suppose instead that the initial old were endowed with a total of 750 units of ﬁat money (everything else stays the same). How do your answers to part c change? Are the initial old better oﬀ (or worse oﬀ) with more units of ﬁat money? 1...
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 Fall '12
 JohnSmithin
 Economics, Macroeconomics, fiat, Fiat Money

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