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Question: You are central bank governor of Economia, a mythical country, where inflation is currently equal to 100% per month. You have been told by the government that you need to increase seignorage in order to finance additional government expenditures.
Unsure how to respond, you call in your two most trusted economic advisors. Advisor 1 tells you that you ought to raise the money growth rate. The other advisor, Advisor 2, tells you that you ought to reduce the money growth rate.
(a) Explain the concept of seignorage, both in words and formally (e.g. algebraically).
(b) Which of the two recommendations is correct when, as stated, your objective is to increase seignorage? Why? (Hint: look up the concept of the "Laffer curve" and use it to answer this question.)
Why might it be difficult for the Fed to formally adopt inflation targeting? Would inflation targeting be a good policy for the Fed in the present economic environment
In using the Taylor Rule as a guideline for monetary policy, what are the pros and cons of using forecasted values of inflation and output rather than observed values of these variables?
Describe the present economic crisis situation in Europe. Why has it been so difficult for the Europeans to find a solution to this problem? Comment on what implications the crisis may have for the rest of the world if Europeans are not able to ag..
Question:. Explain why there are long-term Federal government budget problems. Explain why the base-line forecast of the CBO is misleading.
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Problem based on Utility Function - Problem, Answer and explain the following using a diagram which is completely labeled.
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Question Positive Balance of Payment: "Things will look good for the US if we could just get to where we are consistently running a positive Balance of Payments."
Comment on the effect of a recession on the investment curve (only) and on the level of savings, investment, and the equilibrium real interest rate in the financial crisis that hits United States first starting in fall 2007.
How will a fall in domestic investment affect the trade surplus and net capital outflows in the domestic economy, the trade deficit and capital inflows in the rest of the world.
Banking crises crisis decreases depositors' confidence in the banking system. What would be the effect of a rumor about a banking crisis on checkable deposits in such a country?
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