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1. What is the golden rule of saving? Do you agree with the rule and why?
2. What is inflation and why is it important for us to know the concept of inflation?
Answers & Comments
Answer:
1. An approach to optimum saving is to find the saving rate that maximizes consumption per capita in the steady state. This saving rate is the “golden-rule” saving rate. A lower saving rate would reduce long-run steady-state consumption per capita, but would imply higher consumption in the short run.
2. Inflation is a function of the supply and demand for money, meaning that producing relatively more dollars causes each dollar to become less valuable, forcing the general price level to rise.
Explanation: