In a model that incorporates wealth effects in both the consumption function and the money demand function,
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Question:
In a model that incorporates wealth effects in both the consumption function and the money demand function, explain whether bond or money financing of budget deficits has a larger effect on output. Explain in detail why.
a) What conditions are required for stability of bond financing and why? You do not need to use graphs in your answer, but you must present a clear explanation of the dynamics of the answer. This is based on the discussion of the Blinder and Solow (1973) analysis.
b) What long-run multiplier is more expansionary: Bond financing or money financing? Why?
Related Book For
Introduction To Materials Management
ISBN: 978-9386873248
8th edition
Authors: Arnold J. R. Tony, Gatewood Ann K., M. Clive Lloyd N. Chapman Stephen
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