Consider an economy with a constant nominal money supply, a constant level of real output Y = 250, and a constant rea
Posted: Wed Apr 27, 2022 1:05 pm
Consider an economy with a constant nominal money supply,
a constant level of real output Y = 250, and a
constant real interest rate r = 5%. Suppose that
the income elasticity of money demand is 1.20 and the
interest elasticity of money demand is −0.05.
a. By what percentage does the equilibrium price level differ
from its initial value if output increases to
Y = 275.00 (and r remains at 5%)?
b. By what percentage does the equilibrium price level differ
from its initial value if the real interest increases to
r = 5.50% (and Y remains at 250)?
c. Suppose that the real interest rate increases to
r = 5.50%. By what percentage would real output
have to increase for the equilibrium price level to remain at its
initialvalue?
a constant level of real output Y = 250, and a
constant real interest rate r = 5%. Suppose that
the income elasticity of money demand is 1.20 and the
interest elasticity of money demand is −0.05.
a. By what percentage does the equilibrium price level differ
from its initial value if output increases to
Y = 275.00 (and r remains at 5%)?
b. By what percentage does the equilibrium price level differ
from its initial value if the real interest increases to
r = 5.50% (and Y remains at 250)?
c. Suppose that the real interest rate increases to
r = 5.50%. By what percentage would real output
have to increase for the equilibrium price level to remain at its
initialvalue?