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Unformatted text preview: If I give up all my endowment for money in t: I will pocket Pty in t+1 how many goods can I buy? Pty/pt+1 = y/z Equation 3: In order to get more unit of C2 you have to give up more C1 than if z=1 Printing money has costs: when you print money the people that hold money lose goods, this property is called an inflation tax, because it takes away some of your purchasing power. It is considered to be a proportional tax. T =t*Y. It is a bad tax because it is a proportional tax, because it distorts your behaviour. Holding money is good, because it allows you to trade, you are going to end up buying a different combination of c2 and c1 if there wasnt a inflationary tax. Ex: being hit with 90% tax, so then you will work less to avoid being hit by such a high %....
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- Spring '09