question archive Consider an economy with the following real money demand function, real aggregate income, nominal money supply, price level, and expected rate of inflation: Md/P = 0
Consider an economy with the following real money demand function, real aggregate income, nominal money supply, price level, and expected rate of inflation: Md/P = 0
Subject:EconomicsPrice: Bought3
Consider an economy with the following real money demand function, real aggregate income, nominal money supply, price level, and expected rate of inflation: Md/P = 0.5Y - 10,000(r + me ) Y = 3000 . MS = 4000 . P = 5 . IT = 0.02 a. According to Liquidity Preference Theory, what is the equilibrium real interest rate (r* )? b. All else equal, what will the new equilibrium real interest rate be, if the nominal money supply (MS) is increased from 4000 to 5000? c. If the central bank wants the equilibrium real interest rate (r*) to be 10%, what value should it pick for the nominal money supply (M ), assuming that Y, P, and It" remain at their initial levels?
