Assume a government is financing expenditure by printing money. Assume Mt = zMt-1 where z>1 and that the new of money is introduced into the economy through lump-sum transfers to each old person in period t. The new money is worth at units of consumption good. Answer the following: a) What is the value of money creation? b) Using the first period and second period budget constraints, compute the rate of return for money c) Compute the rate of change of the price level d) Show graphically the budget set with inflation

Assume a government is financing expenditure by printing money. Assume Mt = zMt-1 where z>1 and that the new of money is introduced into the economy through lump-sum transfers to each old person in period t. The new money is worth at units of consumption good. Answer the following: a) What is the value of money creation? b) Using the first period and second period budget constraints, compute the rate of return for money c) Compute the rate of change of the price level d) Show graphically the budget set with inflation

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter19: The Macroeconomic Perspective

Section: Chapter Questions

Problem 29P: The prime interest rate is the rate that banks charge their best customers. Based on the nominal...

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Suppose that the typical consumer has a salary of $30,000 in 2017. His salary grows by 2% per year. What can we say about his ability to pay for his consumption basket over time? (A) He can never pay for his consumption basket without going into debt. (B) In 2017 and 2018, he can pay for his own consumption, but will be unable to in 2019 and 2020 without taking on debt. (C) From 2017-2019, he can pay for his own consumption, but will be unable to in 2020 without taking on debt. (D) He can always pay for his own consumption basket without taking on debt.
Question 1. When the interest rate increases, the price of consumption when old relative to the price of consumption when youngoptions: O. decreasesO. increases O. has an indeterminate change O. does not change
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10 - Which of the following depends on the demand for money, which we say just in case and for this purpose?A) IncomeB) to KeynesC) to the economyD) to interestE) Investment
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Consider the following economy: Labor supply: Nt= 90 Capital stock: Kt = 90 Government spending: Gt = 20 Tax collections: Tt = 20 Production function: Yt = 2(Kt)0.5 (Nt)0.5 Real money demand Lt = 2Yt - 200rt Consumption function: Ct = 16 + 0.8(Yd)t Domestic price level: Pt = 4 Investment function: It = 25 - 50rt Nominal money supply: Mt = 1296 Plot (a)-(d) on the IS-LM and AD-SRAS-LRAS diagrams. Make sure to label (i) the axes, (ii) the curves and (iii) the initial equilibrium levels.
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