Exercises about the role of Money in General Equilibrium Framework and Money and Public Finance W3 of the Monetary Economics Course 08.10.2021 1 Welfare-maximizing ination rate Suppose u(ct,mt) = 2:0 5*[lnct + mic7m], 'y > 0 and ,8 = 0.95. Assume that production function is f (k) 2 ko'5 and a = 0.02. What rate of ination maximizes steadystate welfare? How do real money balances at the welfare maximizing ination rate depend on 7? 2 \"Laffer curve\" of seigniorage Assume that utility is given by u(ct, mt) = w(ct) +v(mt) with w(ct) = lnct and v(mt) = mt(B Dlnmt) where B and D are positive parameters. Steadystate revenue from seigniorage is given by 9m, where 0 is the growth rate of money supply. Demand for the money is given by mt = Ari\"76? where MA = g . 1. Is there a \"Laffer Curve\" for seigniorage (i.e. are revenues increasing in 6 for all 9 S 9* and decreasing in 9 > 9* for some 6*? 2. What rate of money growth maximizes steadystate revenues from seignior age (333)? 3. Assume now that economy's rate of population growth is n and reinterpret m as real money balances per capita. What rate of ination maximizes the seignjorage? How does it depend on n