Reference no: EM132862800

Question 1. Read the article on Digital Currencies, Stablecoins, and the Evolving Payments Landscape by Lael Brainard.

Discuss similarities and differences among a first-generation cryptocurrency such as the bitcoin, a stablecoin such as Facebook Libra and a central bank digital currency. You can use additional references that you find and please list your references. Word limit: 500 words.

Question 2. Understanding inflation and real money demand in Australia. Economists propose one way to measure real money demand by M/PY, where M and PY are money supply and output in nominal terms. The ratio M/PY measures money demand in the sense that it gives the desired real money balances M/P after adjusting for the level of output Y. In this question, we explore how money demand by this definition depends on the inflation rate using Australian data from 1975 to 2018. Please submit your data (keeping three decimal places) as an appendix to your assignment.

(a) Use data from Australian Bureau of Statistics to find nominal output PY and the inflation rate. In particular, you can use data series 5206.0 (Table 3, Column CG) to find quarterly Gross Domestic Product (PY) and data series 6401.0 (Tables 1 and 2, Column AB) to find quarterly inflation measured by percentage change of CPI.

(b) From the Statistics Tables of the Reserve Bank of Australia, find money supply M measured by M1 in Table D3, Column K. Please convert the monthly data into quarterly data by keeping the values of money supply for March, June, September and December in each year.

(c) Calculate real money demand M/PY and plot it against inflation. (Note that output is measured in millions $ and money supply is measured in billions $. It might be useful to convert them into the same units.) Please use inflation as the x-axis and real money demand as the y-axis in your scatter plot. If you fit a linear trendline in your plot, what is the relationship between real money demand and inflation?

(d) How can we use the theory we developed in class to rationalize the observed relationship between real money demand and inflation?

Question 3. The original Phillips curve shows the correlation between inflation and unemployment. Since unemployment and output growth are usually negatively correlated, economists also examine the correlation between inflation and output growth.

(a) Using the database developed by the World Bank (World Development Indicators:

Find annual data on the inflation rate (consumer prices annual %) and the GDP growth (annual %) for Australia and the US from 1961 to 2016. Plot the correlation between inflation and GDP growth in each country. Please use GDP growth as the x-axis and inflation as the y-axis in your plots. Add a trendline in each of your plot.

(b) Using the same database, find as many countries as possible for 1965 and for 2015. Plot the correlation between inflation and GDP growth in each year (1965 and 2015). Again please use GDP growth as the x-axis and inflation as the y-axis in your plots. Add a trendline in each of your plot. (Hint: you may find one or two countries might have extreme values of inflation. You may consider taking out these outliers when you plot the correlation.)

(c) The original Phillips curve identifies es a negative correlation between inflation and unemployment. In your plots above, have you found contradicting evidence? Please brie y discuss how to rationalize the finding from the original Phillips curve and the contradicting evidence using the theory we develop in class.

Attachment:- Digital Currencies.rar