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Unformatted text preview: Monetary Economics I: Financial Markets and Institutions ECON 3430 A & B Midterm Test October 23, 2009 Professor Ahmet Akyol Questions 1. 10 points Show that two indifference curves cannot intersect. This is explained on pages 8-9, and in Figure 1.4. 2. 20 points Here is the statement: Even though the existence of fiat money improves the utility of individuals relative to the autarky case, the amount of fiat money does not matter. Explain clearly what this means. This is explained on page 22 under the section The Neutrality of the Fiat Money Stock and The Role of Fiat Money. 3. 60 points Consider an economy with overlapping generations. Time is discrete, and denoted by t = 1 , 2 , ... . N t young individuals are born in period t . Each individual endowed with y 1 units of perishable consumption goods when young and y 2 units of perishable consumption goods when old. Assume that population follows the process: N t +1 = nN t for all t . (a) Determine the resource (feasibility) constraint for this economy....
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