The IS curve shows the combinations of output and the real interest rate for which
a. the labor market is in equilibrium.
b. the financial asset market is in equilibrium.
c. the goods market is in equilibrium.
d. an increase in output will cause the market-clearing interest rate to be bid up.
Answer: C
FIN 201
- Whether real seignorage revenue increases when the rate of money growth increases depends on whether
- 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 nominal value of seignorage over the year?
- 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?
- Real money demand in the economy is given by L = 0.5Y - 2500i, where Y is real income and i is the nominal interest rate. In equilibrium, real money demand L equals real money supply M/P. Suppose that Y equals 1000 and the real interest rate is 0.02. What is the maximum amount of seignorage revenue?
- Real money demand in the economy is given by L = 0.5Y - 2500i, where Y is real income and i is the nominal interest rate. In equilibrium, real money demand L equals real money supply M/P. Suppose that Y equals 1000 and the real interest rate is 0.02. At what rate of inflation is seignorage maximized?
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- State governments in the United States can raise revenue by all the following means except
- Seignorage is the revenue a government raises by
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- According to the Ricardian equivalence proposition, current deficits
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- The average cost of the distortion created by taxes
- Assume that the lost output due to tax distortions is proportional to the square of the tax rate. If the average cost of the distortion created by taxes is currently $1000, and the tax rate is increased from 40% to 50%, the average cost of the distortion created by taxes will increase to
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- Suppose that all workers place a value on their leisure of 40 goods per day. The production function relating output per day Y to the number of people working per day N is Y = 200N - N^2 and the marginal product of labor is MPN = 200 - 2N. A 20% tax is levied on wages. In terms of lost output, what is the cost of the distortion introduced by this tax?
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- A decrease in the average tax rate, with the marginal tax rate held constant, will
- An increase in the marginal tax rate, with the average tax rate held constant, will