Suppose that consumers are concerned about theft, and so they are willing to use banks for some of their transactions even if the nominal interest rate is zero. Further, suppose that, the more currency consumers hold, the more people are encouraged to steal, as theft is now more profitable. How would the Friedman rule for monetary policy be altered under these circumstances?
Answer to relevant QuestionsFigure shows that the inflation rate and the money growth rate increased on trend until about 1980, and then decreased. What happened to the variability in the inflation rate and the variability in the money growth rate in ...Assume an economy with two firms. Firm A produces wheat and firm B produces bread. In a given year, firm A produces 50,000 bushels of wheat, sells 20,000 bushels to firm B at $3 per bushel, exports 25,000 bushels at $3 per ...Let Kt denote the quantity of capital a country has at the beginning of period t. Also, suppose that capital depreciates at a constant rate d, so that dKt of the capital stock wears out during period t. If investment during ...Suppose that there are shocks total factor productivity which cause aggregate output to fluctuate. What does this imply for the Friedman rule, that is, how should the central bank conduct monetary policy optimally? Discuss.Explain how moral hazard arises in each of the following situations:(a) A mother promises her daughter that she will help her with her homework during the coming school year but only if the daughter has difficulty with her ...
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