The quantity theory of money states that if the velocity of money is stable or at least predictable, then:
a. the quantity of money in circulation determines real GDP in the short run
b. the quantity of money in circulation determines aggregate spending.
c. the quantity of money in circulation determines both real GDP and the price level in the long run.
d. the quantity of money in circulation determines only the price level in the long run.
e. the quantity of money in circulation determines the potential output in the long run.
d
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The equilibrium rate of interest in the market for money is determined by the intersection of the
A. supply-of-money curve and the asset-demand-for-money curve. B. supply-of-money curve and the total-demand-for-money curve. C. investment-demand curve and the total-demand-for-money curve. D. supply-of-money curve and the transactions-demand-for-money curve.
Suppose a business offers a 10% discount on the good x1 that it sells.
a. Illustrate a consumer's before and after-discount budget constraint by modeling x2 as a composite good. b. Suppose you observe only the after-discount consumption decision of the consumer. Can you tell from this information how much revenue the firm is giving up (from this consumer) by offering the discount? If so, illustrate this in your graph. c. Suppose that, instead of the firm offering the 10% discount, the government subsidized consumption of x1 sufficiently to reduce p1 by 10%. Suppose again that you only observe the after-subsidy decision of the consumer. Can you tell how much of a subsidy payment is made to this consumer by the government? If so, illustrate it in your graph. d. Why are your answers to (b) and (c) different? What will be an ideal response?
List and explain the different costs of inflation to a society
Beginning in 2013, a local government in Georgia is instituting a tax on owners of land at a flat rate of $100 per acre every year.
i. Explain who gains and loses from the tax. Specifically comment on what happens to the value of the land, who ends up bearing the burden of the tax. ii. If in 100 years the local government decides to repeal the tax, who will gain and who will lose as a result of the repeal? Explain.