Suppose Velocity for M1 depends on interest rate according to V=

Subject:BusinessPrice:2.89 Bought3

Share With

Suppose Velocity for M1 depends on interest rate according to V=...

 

Suppose Velocity for M1 depends on interest rate according to V= 500i , where i is the nominal interest rate.

a. Using the equation for exchange solve for an expression for Real Demand for money balances (M/P).

b. If real interest rate is 2% and expectation of inflation is 2%, and Real GDP is 200 calculate: i. Velocity of M1 ii. Demand for Real money balances in this economy