Suppose real money demand is
L = 0.8 Y - 100,000 (r + ?e).
If the nominal money supply is 12,000,real output is 15,000,the real interest rate is .02,and the expected inflation rate is .01,then the price level is

Question

Quizplus · Accepted Answer

To find the price level (P), use the equation for real money demand: L = 0.8Y - 100,000(r + ?e). Plug in the given values: L = 0.8(15,000) - 100,000(0.02 + 0.01) = 12,000 - 3,000 = 9,000. Since nominal money supply is 12,000, the price level P = nominal money supply / real money demand = 12,000 / 9,000 = 4/3.

Suppose Real Money Demand Is