Approximate the real interest rate in canada


Discussion:

1. Justify, in words, why MPL=w and MPK=R within a perfect labor market and a perfect capital market, respectively.

2. If wages are equal to the marginal product, why are musicians paid more today than in the 18th century? Any one person can still only play one violin at a time, or conduct one orchestra at a time. (Mozart died deeply indebted.)

3. Suppose Canada annexes Greenland. Within the perfect markets framework discussed in Ch.3, explain what would likely happen to w, R, and Y. State any assumptions you make.

4. Suppose in the market for loanable funds, the supply of resources that are saved is increasing in the interest rate. Why might this be? Does this model, where savings increases with the interest rate, and the base model discussed in class, where savings is independent of the interest rate, have the same predictions for the impact of an increase in government borrowing and spending?

5. At www.bankofcanada.ca, find out approximately how fast the Bank has been in- creasing the money supply over the last couple years. Is this consistent with the quantity equation for money?

7. Approximate the real interest rate in Canada.

8. In class, we discussed a number of costs and benefits of inflation. One that didn't come up is the interaction of fully anticipated inflation and the tax system. How might stable inflation (no unexpected inflation that transfers wealth from lenders to borrowers) combine with taxes to discourage saving

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