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 26 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
:D TYSM

bitingbit

  • Member
  • Posts: 323
Reply 3 on: Yesterday
YES! Correct, THANKS for helping me on my review

« previous next »
 

Did you know?

About 80% of major fungal systemic infections are due to Candida albicans. Another form, Candida peritonitis, occurs most often in postoperative patients. A rare disease, Candida meningitis, may follow leukemia, kidney transplant, other immunosuppressed factors, or when suffering from Candida septicemia.

Did you know?

An identified risk factor for osteoporosis is the intake of excessive amounts of vitamin A. Dietary intake of approximately double the recommended daily amount of vitamin A, by women, has been shown to reduce bone mineral density and increase the chances for hip fractures compared with women who consumed the recommended daily amount (or less) of vitamin A.

Did you know?

The calories found in one piece of cherry cheesecake could light a 60-watt light bulb for 1.5 hours.

Did you know?

In the United States, congenital cytomegalovirus causes one child to become disabled almost every hour. CMV is the leading preventable viral cause of development disability in newborns. These disabilities include hearing or vision loss, and cerebral palsy.

Did you know?

Side effects from substance abuse include nausea, dehydration, reduced productivitiy, and dependence. Though these effects usually worsen over time, the constant need for the substance often overcomes rational thinking.

The recent mass upheavals in Tunisia, Egypt, Libya, Yemen, and Syria gave political scientists a cha The recent mass upheavals in Tunisia, Egypt, Libya, Yemen, and Syria gave political scientists a cha
The world has been horrified recently at a U.S. Congress so polarized and paralyzed that it cannot p The world has been horrified recently at a U.S. Congress so polarized and paralyzed that it cannot p
Poverty comes in many forms. Families who go into debt to buy possessions squeak by month after ... Poverty comes in many forms. Families who go into debt to buy possessions squeak by month after ...
Government By the People, 2016 Presidential Election, 26th Edition Government By the People, 2016 Presidential Election, 26th Edition
Explain how it can be desirable from an intertemporal perspective for a country run a current ... Explain how it can be desirable from an intertemporal perspective for a country run a current ...
Presidential success under unified and divided government, from Eisenhower to trump Presidential success under unified and divided government, from Eisenhower to trump
Video: Anaphylaxis Animation

For a complete list of videos, visit our video library