Consider Two Countries, Hitech and Lotech

question 34

Essay

Consider two countries, Hitech and Lotech. In Hitech new arrangements for making payments, such as credit cards and ATMs, have been enthusiastically adopted by the population, thereby reducing the proportion of income that is held as real money balances. Over this period no such changes occurred in Lotech. If the rate of money growth and the growth rate of real GDP were the same in Hitech and Lotech over this period, then how would the rate of inflation differ between the two countries? Carefully explain your answer.

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Definitions:

Diving Marine Mammals

Marine animals, such as whales, seals, and dolphins, adapted to diving deep under water to feed, communicate, or avoid predators.

Adaptations

The method through which a species adapts to its surroundings; this occurs as natural selection works on variation that can be passed down through generations.

Seals

A group of aquatic mammals known for their streamlined bodies, flippers, and often living in cold seas, part of the family Phocidae.

Dolphins

A group of aquatic mammals within the family Delphinidae known for their intelligence, social behavior, and vocalizations.