Assuming that at equilibrium real money supply (M$/P) is equal to real moneydemand (Md /P), which is assumed to be a function of real income (Y), nominalinterest rate (R), and technology (A) as follows:MSY=A-RP(a) Specify the assumptions needed to uphold the prediction of quantitytheory of money claiming that the ratio of money to GDP is constant in thelong run.e(b) Assuming that the growth rate of Y is 4%, the growth rate of R is 0, andthe growth rate of A is -1%, draw a diagram to indicate the relation betweengrowth rate of MS (on the X-axis) and inflation rate (on the Y-axis).

Answer- Given in the question- Ms/ P = Md/ P = AY/R A Answer - Need to find- Specify assumptions…

Answered: Assuming that at equilibrium real money…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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COURSE: MACROECONOMICS - IS-LM MODEL Analyze and plot IN DETAIL the effect on the money market caused by an increase in the sensitivity of money demand to the level of income (i.e. "k*Y" in the equation of the money Market L = k*Y - h*i). Then, explain and plot how the equilibrium changes in the IS-LM model.

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