# Question: Suppose that the nominal interest rate is zero that is

Suppose that the nominal interest rate is zero, that is, R = 0.

(a) What is the equilibrium quantity of credit card balances?

(b) In what sense does the economy run more efficiently with R = 0 than with R > 0?

(c) Explain your results in parts (a) and (b). Discuss the realism of these predictions.

(a) What is the equilibrium quantity of credit card balances?

(b) In what sense does the economy run more efficiently with R = 0 than with R > 0?

(c) Explain your results in parts (a) and (b). Discuss the realism of these predictions.

## Relevant Questions

In the monetary intertemporal model, suppose that the money supply is fixed for all time. Determine the effects of a decrease in the capital stock, brought about by a war or natural disaster, on current equilibrium output, ...Assume that there are no surprises, with all economic agents and the central bank having full information about shocks that are hitting the economy. Suppose that the central bank adopts a nominal GDP target, and interpret ...Suppose that the central bank observes a drop in real GDP, but does not know what caused this drop.(a) How would the central bank respond if it believed that GDP dropped because of a decline in total factor productivity, and ...In the New Keynesian model, how should the central bank change its target interest rate in response to each of the following shocks. Use diagrams and explain your results.(a) There is a shift in money demand.(b) Total factor ...Use the second model in this chapter, with production and investment, to answer this question. The government in a small open economy is concerned that the current account deficit is too high. One group of economic advisers ...Post your question