Money

Question 1

Quantity theory of money

Answer 1

m+v=p+y

• y doesn’t depend on m
• v constant over the long run
• Empirical evindence for the short run suggests that here money does matter

Question 2

Phillips curve

Answer 2

In high-frequency data there ir

• Positive correlation between inflation rate and output growth
• Negative correlation between inflation rate and unemployment

Question 3

Sidrauski model

Answer 3

• Money enters positively into de utility function: transaction costs enter negatively and these costs depend negatively on the real balances of money
• c_t, m_t+1, b_t+1 are chosen

Question 4

Real interest rate definition

Answer 4

Question 5

Firm problem

Answer 5

Question 6

The Government

Answer 6

Question 7

Equilibrium

Answer 7

Question 8

Steady state

Answer 8

This implies:

• Contant:
  
  • capital
  • income
  • consumption
  • constant real balances
  • contant inflation rate

Question 9

Neutrality and super neutrality

Answer 9

• Neutrality: real variables don’t depend on the price level or the money suply
• Super neutrality: real variables don’t depend on the inflation rate or the rate of growth of money

Question 10

Equilibrium conditions

Answer 10

Question 11

Super neutrality outside the steady state

Answer 11

Question 12

Friedman rule

Answer 12

Inflation rate should be equal to the real interest rate

Question 13

Criticism to the friedman rule

Answer 13