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ECN101_PS3_ans

# ECN101_PS3_ans - This problem set is not graded ECN101...

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This problem set is not graded. ECN101 Problem Set 3 Instructor: Masako Miyanishi 1. What are the three functions of money? Which of the functions do the following items satisfy? Which do they not satisfy? Money functions as a store of value, a medium of exchange, and a unit of account a. A painting by Rembrandt A store of value b. A subway token. Within the subway system, it satisfies all three functions of money. Yet outside the system, it is not widely used as a unit of account or a medium of exchange, so it is not a form of money. 2. In the country of Wiknam, the velocity of money is constant. Real GDP grows by 5% per year, the money stock grows by 14 percent per year, and the nominal interest rate is 11 percent. What is the real interest rate? % change in M+%change in V=% change in P+% change in Y Thus, % change in P=% change in M+% change in V - % change in Y=14%+0%-5%=9% Inflation rate = % change in P The real interest rate = the nominal interest rate-inflation rate=11%-9%=2% 3. Suppose you are advising a small economy (such as Bermuda) on whether to print its own

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ECN101_PS3_ans - This problem set is not graded ECN101...

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