On Mermaid island (a closed economy in the SR), The Mermaids are in a pickle. Someone has
Question:
On Mermaid island (a closed economy in the SR), The Mermaids are in a pickle. Someone has decided to counterfeit money. Unfortunately, the counterfeiter is excellent at her job and it is impossible to know the difference between the real and fake money. Their economy can be expressed as:
C = 50+0.95(Y-T)
T= 2000
G=2000
I = 1000-50r
M= 10000
P = 2
L(r,Y) = Y -200r
While the initial impact of the counterfeit money (M=10,000 to 20,000) is that output will jump, some are worried that the inhabitants will stop using it as a medium of exchange, and the economy would be reduced to bartering - creating a depression. Your job, as a policymaker is to see how you might be able to neutralize the impact of the money and increase demand.
1. Calculate the initial situation (M=10,000) and show the resulting aggregate variables in a table format.
2. Calculate the situation with increased money supply (M=20,000) and show the resulting aggregate variables in a table format.
Basic Statistics for the Behavioral Sciences
ISBN: 978-0840031433
6th edition
Authors: Gary W. Heiman