For each of the following statements, please indicate if it is TRUE or FALSE. Then provide...

For each of the following statements, please indicate if it is TRUE or FALSE. Then provide a justification or explanation of your answer to each question in less than 30 words.

The golden-rule state for an economy with constant population but where the effective supply of labour grows at a steady rate refers to a condition such that consumption of the total population is maximised.
The equation, Y = MV/P, implies that, if the velocity (V) does not change when the money supply (M) changes, then the government can raise national income (Y) by printing more money (M).

Solutions

Expert Solution

The golden-rule state for an economy with constant population but where the effective supply of labour grows at a steady rate refers to a condition such that consumption of the total population is maximised.

False

In an economy with constant population and growing effective supply of labour, the consumption will not be maximised at the steady state. It will also continue to grow with the rise in labour supply. It will be maximized when the supply of labour is maximized.

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2.
The equation, Y = MV/P, implies that, if the velocity (V) does not change when the money supply (M) changes, then the government can raise national income (Y) by printing more money (M).

False

If Y = MV/P, then PY = MV

As per this equation, the velocity of money doesn't change and the real GDP (Y) also remains stable.

If there is an increase in the money supply by printing more money, only the price level (P) will rise. Inflation will occur. The nominal income may rise, but real income doesn't.

Rahul Sunny answered 1 year ago

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