Consider an economy in which there are 1,000 workers. One-half of the workers are endowed with 50
Question:
Consider an economy in which there are 1,000 workers. One-half of
the workers are endowed with 50 units of the consumption good when young and nothing when old. The remaining workers are endowed with 10 units of the consumption good when young and nothing when old. Each worker saves 30% of their endowment when young. Let the gross real rate of return on capital be 1.1. Let the stock of money be constant over time, with M = 10; 000: Assume that each worker uses 10 goods to identify themselves and make a withdrawal from the bank.
(a) What is the aggregate level of savings in the economy? (25% of total question mark)
(b) Write down the money market-clearing condition. Compute the equilibrium price level. (25% of total question mark)
(c) What is the aggregate level of real money balances in the economy? (25% of total question mark)
(d) Compute the money multiplier. (25% of total question mark)
Modeling Monetary Economies
ISBN: 978-1107145221
4th Edition
Authors: Bruce Champ, Scott Freeman, Joseph Haslag