Every variable were perfectly available describe

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every variable were perfectly available? Describe those possible states. f. How many states of the world are the agents able to distinguish when there is limited information (i.e. they do not know the value of 𝒛𝒛 𝒕𝒕 )? g. Draw a graph of labour supply and the growth rate of the fiat money stock in each possible state of the world when there is limited information. What is the correlation observed between money creation and output? h. Suppose the government wanted to take advantage of the relation between money creation and output. If it always inflates (θ= 0), will the graph you derived in part f remain the same? Explain fully. Page 3 of 4 See next Page
Part C (15 marks) Answer all questions of Part C in a separate examination book. a. What is “fiat money” ? When is it an essential medium of exchange? (5 marks) b. Why are OLG models useful to think about fiat money? (5 marks) c. What is the Lucas critique? Why does it matter? Illustrate your answer with references to a famous episode in U.S. monetary history. (5 marks) Page 4 of 4 See next Page

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