An economy has full-employment output of 5000. Government purchases are 1000. Desired consumption and desired investment are given by
C(d) = 3000 - 2000r + 0.10Y
I(d) = 1000 - 4000r
where Y is output and r is the real interest rate. The real interest rate that clears the goods market is equal to
b. 25.00%.
c. 1.25%.
d. 2.50%.
Answer: A
FIN 201
- Whether real seignorage revenue increases when the rate of money growth increases depends on whether
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- Consider an economy that has the following monetary data. Currency held by the nonbank public = $300 Bank reserves = $50 Monetary base = $350 Deposits = $700 Money supply = $1000 The monetary base and the money supply are expected to grow at a constant rate of 20% per year. Inflation and expected inflation are 20% per year. Suppose that bank reserves and currency pay no interest, all currency is held by the public, and bank deposits pay no interest. What is the cost to the public of the inflation tax?
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