What is the demand for money?.
Consider an overlapping generations economy where there are Show more Money Demand and Monetary Equilibrium: Consider an overlapping generations economy where there are N consumers born each period and each lives for two periods young and old. Each is endowed with w units of the good when young and none when old. Preferences are given by U = Ln(c1) + bLn(c2). A. Find the consumers desired savings where 1+r is the return when old. (1 point) B. Suppose the only asset is money m/p. Let 1+rm be the return to holding money where 1+rm = 1/(1+p) = p/p p is todays price level and p is the future price level. What is the demand for money? (1 point) C. Suppose the supply of money increases each period at rate 1+x i.e. Mt+1 = (1 + x)Mt. (Imagine the government prints new money each period and gives it to the old.) What is the Stationary monetary equilibrium (SME) condition? (1 point) Show less
