Label the following statements true or false and justify your answer. (a) Suppose that the money...
Label the following statements true or false and justify your answer. (a) Suppose that the money supply is growing at 10%. If the velocity of money is falling at 10%, then inflation is zero. (b) Suppose that inflation equals the growth rate of the money supply. Then seigniorage revenues are growing over time.
Homework Answers
A> The standard formula for this is MV=PY
There is no change in the real output, i.e. Y
By differentiating wrt log, we get
So, 10%-10%=0%
Thus it is correct.
b> This is false, it means that the effect of the increase in quantity of printing money is nullified by the effect of the inflation.
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