(a) (5 points) Define total uses and total sources of goods in this economy in period t and derive the (per-capita) feasible set. Use gt = Gt Nt−1 . (b) (5 points) Now look at the monetary equilibrium. Combine the constraints on first- and second-period consumption for a typical person into a lifetime budget constraint. Hint: Make sure to consider all available endowments. (c) (5 points) Derive the real rate of return of fiat money. Plug into the lifetime budget constraint. (d) (5 points) Now assume that the government raises lump-sum taxes τ from young individuals to finance its government consumption Gt and does not print new fiat money (z = 1). Show how this policy affects the life-time budget constraint of an individual born in t both directly and indirectly through changes in the rate of return to fiat money.
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