Question 2 Suppose that the government has the following nominal budget constraint. G = T+AB+ AMS The above equation means that government spending (G) is financed by taxes (T), bond (B) changes or/and money supply (M$) changes. Suppose that the government spending is only financed by th revenue from a money supply change, which is called seigniorage gain. The real seigniorage gain, S is defined as S = AMS/P. a. Show that S = μ·f (Y, i) where the growth rate of money supply is given by µ, and Md real money demand = f(Y, i) and i=r+µ. P b. Interpret the condition, S = µ · L(Y, i), based on the statement "inflation is a tax.” = 0, respectively? Interpret the ds C. Under what conditions, ds > 0, ἀμ ds < 0, and ἀμ dμ results.

Question 2 Suppose that the government has the following nominal budget constraint. G = T+AB+ AMS The above equation means that government spending (G) is financed by taxes (T), bond (B) changes or/and money supply (M$) changes. Suppose that the government spending is only financed by th revenue from a money supply change, which is called seigniorage gain. The real seigniorage gain, S is defined as S = AMS/P. a. Show that S = μ·f (Y, i) where the growth rate of money supply is given by µ, and Md real money demand = f(Y, i) and i=r+µ. P b. Interpret the condition, S = µ · L(Y, i), based on the statement "inflation is a tax.” = 0, respectively? Interpret the ds C. Under what conditions, ds > 0, ἀμ ds < 0, and ἀμ dμ results.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

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