Consider an economy for which the current GDP is $800 billion, “the” multiplier is 3, the income multiplier with respect to the money supply is 4, the money multiplier is 5, the marginal tax rate is 20%, the real interest rate is 3%, the current budget deficit is $30 billion, the long‐run real rate of growth is 2%, the current money supply is $200 billion, the rate of money supply growth is 10%, and financial innovations are decreasing money demand by 1% per year. Marks are given for your explanations, not the final answer. What should be the long‐run rate of inflation? What should be the price of a T‐bill due to mature in six months at its face value of $1,000?
Consider an economy for which the current GDP is $800 billion, “the” multiplier is 3, the income multiplier with respect to the money supply is 4, the money multiplier is 5, the marginal tax rate is 20%, the real interest rate is 3%, the current budget deficit is $30 billion, the long‐run real rate of growth is 2%, the current money supply is $200 billion, the rate of money supply growth is 10%, and financial innovations are decreasing money demand by 1% per year. Marks are given for your explanations, not the final answer. What should be the long‐run rate of inflation? What should be the price of a T‐bill due to mature in six months at its face value of $1,000?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Consider an economy for which the current GDP is $800 billion, “the”
multiplier is 3, the income multiplier with respect to the money supply is
4, the money multiplier is 5, the marginal tax rate is 20%, the real interest
rate is 3%, the current budget deficit is $30 billion, the long‐run real rate of
growth is 2%, the current money supply is $200 billion, the rate of money
supply growth is 10%, and financial innovations are decreasing money
final answer.
What should be the long‐run rate of inflation?
What should be the
its face value of $1,000?
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