During World War II, whenever interest rates would rise and the price of bonds would begin to fall, the Fed would
A) lower reserve requirements.
B) raise reserve requirements.
C) make open market purchases of government securities.
D) make open market sales of government securities.
C
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If Rory McIlroy only earned $500 per hour playing golf instead of $1,000 per hour, what should he do?
A) He should be indifferent as to who does the weed-whacking, for the difference in hourly earnings would now be insignificant. B) He should hire a less-productive gardener. C) He should do the weed-whacking himself. D) He should still hire the gardener.
Real money demand in the economy is given by
L = 0.3Y - 600i, where Y is real income and i is the nominal interest rate. In equilibrium, real money demand L equals real money supply M/P. Suppose that Y equals 2000 and the real interest rate is 5%. (a) At what rate of inflation is seignorage maximized? (b) What is the maximum amount of seignorage revenue?