A. (CHAPTER 6) Suppose there are two islands. The total population on the two islands is 800 people. The stock of fiat money is $400. The growth rate of fiat money is 1.2. The probability that a person is in island 1 is 1/6 and in island 2 is 5/6. The labour supply decision is fixed at 10 units (in terms of goods). i. Write down the money market clearing condition for each island and solve for the price level in date 1 for each island. ii. Calculate the dollar value and real value of transfers given to each old person in each islands.

A. (CHAPTER 6) Suppose there are two islands. The total population on the two islands is 800 people. The stock of fiat money is $400. The growth rate of fiat money is 1.2. The probability that a person is in island 1 is 1/6 and in island 2 is 5/6. The labour supply decision is fixed at 10 units (in terms of goods). i. Write down the money market clearing condition for each island and solve for the price level in date 1 for each island. ii. Calculate the dollar value and real value of transfers given to each old person in each islands.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter25: Money, Banking, And The Federal Reserve System

Section: Chapter Questions

Problem 3P

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