Menu

Question 3 Consider An Economy With A Shrinking Stock Of Fiat Money Let Nt = N A Constant And Mt = Z Mt1 For

0 Comment

Question 3- Consider an economy with a shrinking stock of fiat money. Let N; = N, a constant,
and M, = z MM for every period t, where z is positive and less than 1. The government taxes each old person 1: goods in each period, payable in fiat money. It destroys the money it collects. . Find and explain the rate of return in a monetary equilibrium. 6. Prove that the monetary equilibrium does not maximize the utility of the future
generations. Hint: fillow the steps of the equilibrium with a subsidy, noting that a tax is
like a negative subsidy. f. Do the initial old prefer this policy to the policy that maintains a constant stock of fiat
money? Explain. Economics