Suppose the money demand function is given by
Md/P = 640 + 0.1Y - 5000 (r + ?e).
Suppose the central bank changes the nominal money supply depending on income and inflation:
Ms = 1000 + 0.1Y - 4000?.
(a)If expected inflation equals actual inflation = 0.03,Y = 1000,and r = 0.02,calculate the price level.
(b)If inflation rises to 0.04 while the other variables remain as in part a,calculate the price level.
(c)If expected inflation rises to 0.04 while the other variables remain as in part a,calculate the price level.
(d)If the real interest rate rises to 0.03 while the other variables remain as in part a,calculate the price level.
Correct Answer:
Verified
View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Q84: If the nominal money supply grows 6%,real
Q88: Suppose real money demand is
L = 0.8
Q89: If nominal money supply grows 3% and
Q91: If real money demand increases 5% and
Q92: If the nominal money supply doubles while
Q97: Suppose the real interest rate is 4%
Q100: Assume that prices and wages adjust rapidly
Q105: When a government prints money to finance
Q107: The most likely explanation for the high
Q109: If the nominal money supply grows 10%,the
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents