mbfm2020_tute10.pdf - Money Banking and Financial Markets...

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Money, Banking and Financial Markets: Tutorial 10 University of Adelaide May 20, 2020 Prepare answers to all questions in this assignment. Please type all your answers. Max overall length is two pages . Minimum font size is 12pts. Use your own words! Please put your name and university ID number at the top, as well as the day and time of your tutorial. Thanks. 1 Exercise Consider two identical countries in our standard overlapping generations model. In each country, the population of every generation is 100, and each young person wants money balances worth 18 goods. Each member of the initial old starts with $3 of country a money and £ 3 of country b money, regardless of citizenship. The exchange rate is °xed at 2: $1 is worth £ 2. There are no foreign currency controls. a. Find the value (measured in goods) of a unit of each country±s money in a stationary equilibrium with unchanging money stocks. What is the consumption of each old person? b. Suppose each member of the initial old of both countries decides to cut her

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