The next three questions involve the following equation, which summarizes the quantity theory of money in an overlapping generations model: pt = Mt Nt(yt c1)

. Consider an economy with a constant population, in which the endowment grows at a rate of > 1 per year, so that yt = yt1. The money supply grows at a rate of z > 1. First-period consumption is zero. What is this economys rate of inflation?

(A) z/

(B) z

(C) /z

(D) z

Instead, consider an economy in which c1 = yt , and in which money supply and population are constant. What is the real value of this economys money?

(A)

(B) 0

(C) yt

(D)

Now consider an economy in which the population, endowment, and consumption are constant. The initial money supply is M0 > 0, and in each period, the government takes a portion, < 1 of the money stock out of existence, so that Mt = Mt1. Suppose that = 0.8. How many periods does it take for the money stock to become less than M0 2 ?

(A) 1

(B) 2

(C) 3

(D) 4