Why is the theory of inflation

Reference no: EM13786504

1. Why is the theory of inflation that we have learnt in the class called classical theory?

2. Give an example of a transaction whose value does not qualify as a part of nominal GDP. Also give an example where it does.

3. Suppose that the velocity of money is constant. Now, real GDP grows by 5% per year, the money stock grows by 14% per year and the nominal interest rate is 11%. Calculate the real interest rate.

4. Suppose a country has a money demand function (M/P)d= kY, where k is a constant parameter. The money supply grows by 12% per year and the real income grows by 4% per year.

5. Define seigniorage. Suppose Fed prints one thousand $10 bills incurring a cost of $0.5/bill. What is the seigniorage here?

6. Define inflation tax

Reference no: EM13786504

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