Difference in the value of money in the two economies

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Consider two economies, A and B. Both economies have the same population, supply of fiat money, and endowments. In each economy, the number of young people born in each period is constant at N, and the supply of fiat money is constant at M. Furthermore, each individual is endowed with y units of the consumption good when young and zero when old. The only difference between the economies is with regard to preferences. Other things being equal, individuals in economy A have preferences that lean toward first-period consumption; individual preferences in economy B lean toward second-period consumption. We will also assume stationary. 2 a) Will there be a difference in the rates of return of fiat money in the two economies? If so, which economy will have the higher rate of return of fiat money? Give an intuitive interpretation of your answer. b) Will there be a difference in the value of money in the two economies? If so, which economy will have the higher value of money? Give an intuitive interpretation of your answer.

Reference no: EM131003403

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