You are treasurer of your local community sports club in St. Catharines. The club

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You are treasurer of your local community sports club in St. Catharines. The club

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48. You are treasurer of your local community sports club in St. Catharines. The club
has received a bequest of $100,000, and you are in charge of deciding what to do with
it. You strongly believe that the economy will experience a boom period, but you also
want to hedge your bets. Which of the following investments would be best?
(A) Invest in $100,000 of allocated gold.
(B) Invest $100,000 in an equity-based mutual fund tied to the TSX.
(C) Invest $90,000 in an equity-based ETF tied to the TSX, and $10,000 in a moneymarket fund.
(D) Invest $90,000 in an equity-based ETF tied to the TSX, and $10,000 in allocated
gold.
The next three questions involve the following equation, which summarizes
the quantity theory of money in an overlapping generations model:
pt =
Mt
Nt(yt − c1)
49. Consider an economy with a constant population, in which the endowment grows
at a rate of α > 1 per year, so that yt = αyt−1. The money supply grows at a rate of
z > 1. First-period consumption is zero. What is this economy’s rate of inflation?
(A) z
α
.
(B) αz.
(C) α
z
.
(D) α
z
.
50. Instead, consider an economy in which c1 = yt
, and in which money supply and
population are constant. What is the real value of this economy’s money?
(A) −∞.
(B) 0.
(C) yt
.
(D) ∞.
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51. Now consider an economy in which the population, endowment, and consumption
are constant. The initial money supply is M0 > 0, and in each period, the government
takes a portion, β < 1 of the money stock out of existence, so that Mt = βMt−1. Suppose that β = 0.8. How many periods does it take for the money stock to become less than M0 2 ? (A) 1. (B) 2. (C) 3. (D) 4. 52. Under seignorage, the issuers of money derive the greatest real gains. Why? (A) The Cantillon effect generates asset bubbles. (B) A central bank can determine whatever assets it exchanges for money, due to its monopoly over the currency. (C) Deficit spending primarily benefits the government, and not the taxpayer. (D) They can spend the newly-issued money before inflation erodes its value. 53. Suppose that in 2030, millions of Boomers retire, and liquidate their assets to pay for retirement. What will this do to each Boomer’s retirement savings? (A) This will increase the value of their savings, as the real economy grows to keep up with the rising demand for assets. (B) Unknown. These assets, such as land and housing, are uncorrelated to economic conditions, and are correlated generally to local services. (C) This will decrease the value of their savings, as the market is flooded by assets. (D) Nothing. Savings are protected by robust pension plan requirements. 54. Which of the following is NOT a reason that gold has been historically and universally used as money? (A) It is almost impossible to destroy. (B) It is impossible to synthesize. (C) Its aesthetic value. (D) It is difficult to mine.

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