lec08_02 - ECON 4721H Money and Banking Lecture 08_02...

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Unformatted text preview: ECON 4721H Money and Banking Lecture 08_02 Satoshi Tanaka University of Minnesota November 16, 2011 Satoshi Tanaka ECON 4721H Money and Banking Lecture 08_02 Role of Central Bank II Model with Seignorage Satoshi Tanaka ECON 4721H Money and Banking Lecture 08_02 Today's Question How does the ine ciency of in ation arise? Is it good idea for the government to collect tax through in ation? Satoshi Tanaka ECON 4721H Money and Banking Lecture 08_02 Review of Last Class 1 So, if there is no in ation; that is, if v t + 1 v t = 1 , and a = holds, the above two maximization problems are essentially same! So, the CE with money is also optimal. 2 But, if the government increase money supply; that is, if v t + 1 v t = 1 z with z > 1 holds, the above two maximization problems become di erent. How does it look like on the graph? Satoshi Tanaka ECON 4721H Money and Banking Lecture 08_02 Review of Last Class A: Equilibrium without in ation B: Equilibrium with in ation A B v t +1 v t = 1 v t +1 v t = 1 z C 2 C 1 c 1 + c 2 = y Figure: Consumptions for The Young and The Old Satoshi Tanaka ECON 4721H Money and Banking Lecture 08_02 Seignorage Suppose the government has some expenses that it must nance....
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lec08_02 - ECON 4721H Money and Banking Lecture 08_02...

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