The government destroys the fiat money it collects a

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goods in each period, payable in fiat money. The government destroys the fiat money it collects. a. Write down the government budget constraint. b. Write down the first- and second-period budget constraints facing a typical individual. c. Write down the lifetime budget constraint of a typical individual. d. Find the rate of return on fiat money in a stationary monetary equilibrium. Explain. e. Does the monetary equilibrium maximize the utility of future generations? Explain. f. Do the initial old prefer this policy to the policy that maintains a constant stock of fiat money? Explain.
Course ID: 105517 Page 3 of 4 See next page Part B (20 marks) Use a SEPARATE examination book for Part B. Answer BOTH exercises. Do not answer questions on this examination paper. Exercise B.1 (10 marks):Suppose that there are three types of people in our model of two countries and two currencies. Type apeople can hold only the money of country a; type people can hold only the money of country b; and type cpeople can hold the money of either country. Every person wants to hold 6 goods worth of money. There are 200 type apeople, 300 type bpeople, and 50 type cpeople. There are 100 units of country amoney and 200 units of country bmoney. a. Find the range of stationary equilibrium values for v, vand e. b. Now suppose that 50 type apeople and 50 type bpeople become type cpeople. Find the range of stationary equilibrium values for v, vand e. Has the range of equilibrium exchange rates expanded or contracted? Explain this change. Exercise B.2 (10 marks):b

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