Technical 1. Assume an economy faces the following money demand function() Y 5/5 a. Calculate the velocity of money if t

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Technical 1 Assume An Economy Faces The Following Money Demand Function Y 5 5 A Calculate The Velocity Of Money If T 1 (45.04 KiB) Viewed 14 times

Technical 1. Assume an economy faces the following money demand function() Y 5/5 a. Calculate the velocity of money if the nominal interest rate is 3%. b. If output is 10,000 units and the money supply is $7500, what is the price level? C. Suppose the announcement of a new head of the central bank, with a reputation for being soft on inflation, increases expected inflation by 3%. According to the Fisher I effect, what is the new nominal interest rate? Calculate the new velocity of money, d. If, in the aftermath of the announcement, both the economy's output and the current money supply are unchanged, what happens to the price level, and why? e. What does your answer to part d imply about the importance of expected inflation in the economy?