This topic contains a solution. Click here to go to the answer
« previous next »

Author Question: Explain haircuts when a government defaults its debt. What will be an ideal ... (Read 67 times)

misspop

  • Hero Member
  • *****
  • Posts: 540
on: Jun 30, 2018
Explain haircuts when a government defaults its debt.
 
  What will be an ideal response?

Question 2

Suppose the central bank decreases the rate of growth of the money supply. What effect will this decrease in money growth have on seignorage in: (1 ) the short run; and (2 ) the medium run? Explain.
 
  What will be an ideal response?


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

jaygar71

  • Sr. Member
  • ****
  • Posts: 323
Reply #1 on: Jun 30, 2018
Answer to Question 1

Default is often partial and creditors take is what is known as a haircut. A haircut of 40, for example, means that creditors receive 60 of they were owed.

Answer to Question 2

Seignorage equals the rate of growth of H times real money balances. In the short run, the decrease in money growth will likely cause a reduction in seignorage as long as H/P does not change or does not fall significantly. H/P is a function of real income and the nominal interest rate. In the short run, Y will fall and i will likely rise so H/P will decrease. In the medium run, Y will not change. The decreased money growth will cause a reduction in inflation and a reduction in the nominal interest rate causing H/P to increase. Therefore, the effects of a decrease in money growth on seignorage are ambiguous.


misspop

  • Member
  • Posts: 540
Reply 2 on: Jun 30, 2018
Great answer, keep it coming :)

vickyvicksss

  • Member
  • Posts: 351
Reply 3 on: Yesterday
Gracias!

« previous next »
 

Did you know?

The modern decimal position system was the invention of the Hindus (around 800 AD), involving the placing of numerals to indicate their value (units, tens, hundreds, and so on).

Did you know?

Eating food that has been cooked with poppy seeds may cause you to fail a drug screening test, because the seeds contain enough opiate alkaloids to register as a positive.

Did you know?

Not getting enough sleep can greatly weaken the immune system. Lack of sleep makes you more likely to catch a cold, or more difficult to fight off an infection.

Did you know?

The eye muscles are the most active muscles in the whole body. The external muscles that move the eyes are the strongest muscles in the human body for the job they have to do. They are 100 times more powerful than they need to be.

Did you know?

Bacteria have flourished on the earth for over three billion years. They were the first life forms on the planet.

In 2008, the U.S. economy suffered a gaping wound as several trillion dollars were ripped out of it. In 2008, the U.S. economy suffered a gaping wound as several trillion dollars were ripped out of it.
Cultures Ideal Body Types Cultures Ideal Body Types
What are examples of ideal forms? What are examples of ideal forms?
Draw and label a diagram and explain how a factor-dependent transcription (rho-dependent) terminator Draw and label a diagram and explain how a factor-dependent transcription (rho-dependent) terminator
Mechanisms to Explain the Effects of Massage Mechanisms to Explain the Effects of Massage
For the circuit in Figure 1, assume ideal diodes. The peak inverse voltage is approximately For the circuit in Figure 1, assume ideal diodes. The peak inverse voltage is approximately
Video: Digestion Animation

For a complete list of videos, visit our video library