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 1:07 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?
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?