What is effect on deposit-to-currency ratio-nominal money

Assignment Help Business Economics

Reference no: EM13998650

Consider an overlapping-generations model with inside and outside money, where the rate of return on inside money is x, while the rate of return on outside money is 1 z . There is a one-time transaction cost of φ associated with inside money, independently of the purchase size. (a) Show graphically how individuals optimally decide whether to use inside or outside money depending on the size si of their purchase. Show who uses inside money and who uses outside money. (b) What is the effect on the deposit-to-currency ratio, nominal money stock M1 and present and future GDP of an anticipated increase in z (anticipated inflation)? (c) How would your answer in part b differ if the increase in z was unanticipated (unanticipated inflation)? (d) How could this model explain positive co-movement between M1 and GDP without ever-increasing inflation?

Reference no: EM13998650

Questions Cloud

Seeming conflict between economic growth versus equity : Discuss your understanding of the seeming conflict between economic growth versus equity. Specifically, does the Congress or a section of the Congress promote economic growth without proper attention to achieving equity - a fundamental goal of our so..

What stage of the business cycle : Examine the level of business activities in the U.S. economy over the past few months. Which trends do you find of interest? What stage of the Business Cycle is the U.S. economy, given the current levels of business activity?

How much of the annual payments is interest : Jonathan borrowed $10000, at 6% annual compound interest. He agreed to repay the loan with five equal annual payments at end of years 1-5. How much of the annual payments is interest, and how much principal is there in each annual payment?. (Complete..

What output level will yield the largest possible profit : A purely competitive firm finds that the market price for its product is $30.00. It has a fixed cost of $100.00 and a variable cost of $17.50 per unit for the first 50 units and then $37.50 per unit for all successive units. What is the average varia..

What is effect on deposit-to-currency ratio-nominal money : Consider an overlapping-generations model with inside and outside money, where the rate of return on inside money is x, while the rate of return on outside money is 1 z. What is the effect on the deposit-to-currency ratio, nominal money stock M1 and ..

Study of microeconomics and the study of macroeconomics : What is the difference between the study of microeconomics and the study of macroeconomics? Provide two examples of each form of economic analysis. Evaluate the following statement…”In order for a model to be useful, all assumptions used to create th..

What is the equilibrium level of capital when money stock : Assume that fiat money and capital are perfect substitutes as assets and that individuals wish to hold the one with a higher rate of return, but that it takes time to adjust capital holdings. In equilibrium individuals hold both assets. What is the e..

Consider an economy inhabited by overlapping generations : Consider an economy inhabited by overlapping generations of two-period-lived individuals, each of whom receives an endowment of y in the first period of life and none in the second. The population of newborns grows as follows: Nt = nNt−1, where n > 1..

Compute revenues and profits at each output rate : The following table depicts the daily output, price, and costs of a monopoly dry cleaner located near the campus of a remote college town. (See page 540.) Output (suits cleaned) Price per Suit ($) Total Costs ($) 0 8.00 3.00 1 7.50 6.00 2 7 .00 8.50 ..

User Account

All Pages