Consider an economy for which the current GDP is $800 billion, “the” multiplier is 3, the income multiplier with respect to the money supply is 4, the money multiplier is 5, the marginal tax rate is 20%, the real interest rate is 3%, the current budget deficit is $30 billion, the long‐run real rate of growth is 2%, the current money supply is $200 billion, the rate of money supply growth is 10%, and financial innovations are decreasing money demand by 1% per year. Marks are given for your explanations, not the final answer. What should be the long‐run rate of inflation? What should be the price of a T‐bill due to mature in six months at its face value of $1,000?
Consider an economy for which the current GDP is $800 billion, “the” multiplier is 3, the income multiplier with respect to the money supply is 4, the money multiplier is 5, the marginal tax rate is 20%, the real interest rate is 3%, the current budget deficit is $30 billion, the long‐run real rate of growth is 2%, the current money supply is $200 billion, the rate of money supply growth is 10%, and financial innovations are decreasing money demand by 1% per year. Marks are given for your explanations, not the final answer. What should be the long‐run rate of inflation? What should be the price of a T‐bill due to mature in six months at its face value of $1,000?
Chapter20: Monetary Policy
Section: Chapter Questions
Problem 4SQP
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Question
Consider an economy for which the current
multiplier is 3, the income multiplier with respect to the money supply is
4, the money multiplier is 5, the marginal tax rate is 20%, the real interest
rate is 3%, the current budget deficit is $30 billion, the long‐run real rate of
growth is 2%, the current money supply is $200 billion, the rate of money
supply growth is 10%, and financial innovations are decreasing money
demand by 1% per year. Marks are given for your explanations, not the
final answer.
What should be the long‐run rate of inflation?
What should be the
its face value of $1,000?
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