A model of saving and demand for money. II

The work continues [1]. The demand for money and saving supply functions obtained in [1] are used in a close general equilibrium model with a nonzero interest payments on cash. It is shown that interest of $\rho$ per cent per annum paid on cash will give rise to an increase of $\rho$ per cent per annum in the inflation rate. The dynamic equilibrium in an economy with heterogeneous households is studied. The equilibrium turns out to differ significantly from the one in a homogeneous economy. A model of selection of households' time preference rates is considered. The model proves the positiveness of the rate of pure time preference.