Question

Answer True, False or Uncertain. Brieáy explain your answer

Please explain

1. A permanent increase in money supply cannot affect any variable in the OLG model of money.

2. In the OLG model of money, Fiat money does not pay interest, so money's rate of return is 1.

3. Suppose that the government finances its expenditure through seigniorage revenue. There exists an upper limit on the amount of the seigniorage revenue that can be generated.

4. The original Phillips curve finds that there is a negative correlation between inflation and output growth.

5. The Lucas critique indicates that the government can use a random monetary policy to stimulate output.

Answer 1

1.            False:

Money is a bubble. Its value derives solely from the expectation that money will be valued tomorrow. Money is valued like any other asset.

Increases in the stock of government debt, or in government spending financed by taxation, were shown to raise the interest rate and lower output. An increase in the money supply through an open-market purchase of government debt was shown to lower the interest rate and raise output.

2.            uncertain:

In the OLG model of money, Fiat money does not pay interest, so money's rate of return is 1.

3.            True:

Seigniorage is the difference in face value of money, such as a $0.25 quarter coin, and the cost to produce it. Seigniorage may be counted as positive revenue for a government when the money it creates is worth more than it costs to produce. If the government has monopoly control over the money supply, however, it may potentially finance its expenditures by simply printing new money. Revenue generated in this manner is called seigniorage.

n some situations, the production of currency can result in a loss instead of a gain for the government creating the currency (e.g. producing copper pennies).therefore there is an upper limit to produce either the Gresham law would operate.

4.            False:

In 1958, Alban William Housego Phillips, a New-Zealand born British economist, published an article titled “The Relationship between Unemployment and the Rate of Change of Money Wages in the United Kingdom, 1861-1957” in the British Academic Journal, Economica. In the article, A.W. Phillips showed a negative correlation between the rate of unemployment and the rate of inflation – the years with high unemployment showed low inflation and the years with low unemployment experienced high inflation

5.            False: he Lucas critique, named for Robert Lucas's work on macroeconomic policymaking, argues that it is naive to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data, especially highly aggregated historical data. Lucas critique did not found single monetary policy achieving to induce the output in the economy. As the mundell fleming mix strategy policy could be useful to decrease the inflation in one hand and increasing output on the other hand. As the only inflation targeting monetary policy is not sufficient or enhance the output in later.