Let us consider the complete intertemporal monetary model. Suppose now the government encourages the use of credit card so that given q, the credit issuance X goes up. Use the diagram to analyze the effect on money in the market M, Price P, real interest rate r, total output y, wage w, and labor N. Calculate.

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Solution In the intertemporal monetary model if the government encourages the use of credit cards it leads to an increase in credit issuance X given q... View the full answer