Consider an economy for which the current GDP is $800 billion, “the”rnmultiplier is 3, the income multiplier with respect to the money supply isrn4, the money multiplier is 5, the marginal tax rate is 20%, the real interestrnrate 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 moneyrnsupply growth is 10%, and financial innovations are decreasing money demand by 1% per year. Marks are given for your explanations, not their 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 traits face value of $1,000?

Answer rating: 100% (QA)

In the long run the rate of inflation will be determined by two factors th... View the full answer