Consider a commodity money economy like the one described in class but with the following features: There are 100 identical people in every...
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Macroeconomics / Money & Banking

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Consider a commodity money economy like the one described in class but with
the following features: There are 100 identical people in every generation. Each
person is endowed with 10 units of the consumption good when young and
nothing when old. Assume that each young person wishes to acquire money
balances worth half of his endowment, regardless of the rate of return. The
initial old own a total of 100 units of gold. Assume that people are indifferent
between consuming I unit of gold or 2 units of the consumption good.
1. Suppose the initial old choose to sell their gold for consumption goods
rather than consume the gold. Write an equation that represents the
equality of supply and demand of gold ( market clearing condition for gold).
Use it to find the number of units of gold purchased by each person, my,
and the value of gold of.
2. At this value of gold, will the initial old actually choose to consume any
of their gold?
3. Would the initial old choose to consume any of their gold if the total initial
stock of gold were 800? In this case, what would be the value of gold and
the stock of gold after the initial old consumed some of their gold?

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