Assume that the demand for real money balance (M/P) is M/P = 0.6Y - 100i, where Y is national income and i is the nominal interest rate (in percent). The real interest rate r is fixed at 3 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth.

a. If $Y$ is $1,000 , M$ is 100 , and the growth rate of nominal money is 1 percent, what must $i$ and $P$ be?
b. If $Y$ is $1,000 , M$ is 100 , and the growth rate of nominal money is 2 percent, what must $i$ and $P$ be?

Question

Assume that the demand for real money balance (M/P) is M/P = 0.6Y - 100i, where Y is national income and i is the nominal interest rate (in percent). The real interest rate r is fixed at 3 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth.

a. If $Y$ is $1,000 , M$ is 100 , and the growth rate of nominal money is 1 percent, what must $i$ and $P$ be?
b. If $Y$ is $1,000 , M$ is 100 , and the growth rate of nominal money is 2 percent, what must $i$ and $P$ be?

Quizplus · Accepted Answer

The Answer of Assume that the demand for real money balance (M/P) is M/P = 0.6Y - 100i, where Y is national income and i is the nominal interest rate (in percent). The real interest rate r is fixed at 3 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth.

a. If $Y$ is $1,000 , M$ is 100 , and the growth rate of nominal money is 1 percent, what must $i$ and $P$ be?
b. If $Y$ is $1,000 , M$ is 100 , and the growth rate of nominal money is 2 percent, what must $i$ and $P$ be?

Assume That the Demand for Real Money Balance (M/P) Is YYY

Assume That the Demand for Real Money Balance (M/P) Is $Y$