Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

2. The following problem illustrates Milton Friedman's money growth rule which is a center piece of the Monetarist thinking of macroeconomics. Suppose the economy is

image text in transcribed

image text in transcribed
2. The following problem illustrates Milton Friedman's money growth rule which is a center piece of the Monetarist thinking of macroeconomics. Suppose the economy is given by the following: Technology: Y = 10K,(L;).7. Consumption Function: C = .TY. Depreciation rate: 10% (i.e. 6 = .10). Population growth: 1% (i.en = .01). Technological growth: 1% (i.e g = .02). 2N Money demand: L; = 3Y. In addition suppose that Lo = Lo = 10, Mo = 10, 000 and Ko is such that the economy is at the steady state. (Note, don't confuse the different notational uses for L.) (a) Find the steady state level of kt, y, G and it. (b) What is Ko. (c) What is Yo- (d) What is Po. One important part of Milton Friedman's monetarist theory is the rule for money supply growth. This rule requires that the money supply grow at the same rate as GDP. It is argued that if this rule is followed, then long term inflation can be avoided. To illustrate this result, we now apply Milton Friedman's rule to this example economy

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Contemporary Advertising

Authors: William F Arens

16th Edition

1260735419, 9781260735413

More Books

Students also viewed these Economics questions