Question: Please solve the following macro economic question: Problem 3 . ( Monetary and fiscal policy ) A country called X has been experiencing rapid inflation.
Please solve the following macro economic question:
Problem Monetary and fiscal policy
A country called X has been experiencing rapid inflation. Table displays the fiscal conditions in the form of the steady state values of government expenditures g tax collections T and real values of the government debt B The gross real rate of return ou interestbearing government debt is r Table displays monetary conditions in terms of the public's demand for real balances of government issued monoy; PhiY rmu Here mu is the stationary net growth rate of the nominal money supply, namely, Mtmu Mt where M is the nominal money supply at time t The unit of time is one year and all quantities are expressed as fractions of GDP per year.
Table : Fiseal worksheet
Table : Monetary worksheet
a Please fill in the empty cells in the federal budget worksheet. The 'primary deficit' is also, sometimes called the 'netofinterest deficit". The 'total deficit' is sometimes also called the 'grussofinterest deficit'.
b Please fill in the empty cells in the monetary worksheet.
c Please briefly explain why 'seignionge' can be regarded as a revenue source for the government.
d With these fiscal and monetary fundamentals, please tell what country Xis rate of inflation is
e Please describe the monetary and fiscal adjustments, if any, that country X bhould implement If it wants to cradicate inflation.
f A new central banker has just been inaugurated who has promised permanently to eradicate inflation within a year She promises to do so by using open market operations. It is within her power to execute open market operations exchanges of currency for interest bearing bonds Plesse write a oneparagraph meno to this central banker advising her about her promised policy and its prospects for suecess.
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