Question: 16.9 Return to Problem 16.6 and now assume that Smith and Jones conduct their exchanges in paper money. The total supply of such money is

16.9 Return to Problem 16.6 and now assume that Smith and Jones conduct their exchanges in paper money. The total supply of such money is $60, and each individual wishes to hold a stock of money equal to -j of the value of transactions made per period.

a. What will the money wage rate be in this model? What will the nominal prices of X and Fbe?

b. Suppose the money supply increases to $90. How will your answers to part

(a) change?

Does this economy exhibit the classical dichotomy between its real and monetary sectors?

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