Consider a classical economy in which the full employment rate of output is y, = 200, the money demand function is M,/P, = 0.3 y,/R, , and saving-investment behavior satisfies y, = 250 - 1000 r,. (Here r, and R, are real and nominal interest rates, measured in fractional units.) If the central bank creates money at a rate of 10 percent per period, what will be the steady-state values of the nominal interest rate and the real quantity of money? %3D %3D Or money is created

Consider a classical economy in which the full employment rate of output is y, = 200, the money demand function is M,/P, = 0.3 y,/R, , and saving-investment behavior satisfies y, = 250 - 1000 r,. (Here r, and R, are real and nominal interest rates, measured in fractional units.) If the central bank creates money at a rate of 10 percent per period, what will be the steady-state values of the nominal interest rate and the real quantity of money? %3D %3D Or money is created

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose a country has a money demand function (M/P)d=kY, where k is a constant parameter. The money supply grows by 12 percent per year, and real income grows by 4 percent per year. What is the average inflation rate?
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Assume that the long-run level of output is Y=1000Y=1000, which the economy is also at initially in the short-run. Suppose that the consumption and investment functions are, respectivley, C=100+0.8(Y−T¯),I=100−2000r,C=100+0.8(Y−T¯),I=100−2000r, that is, MPC is 0.8. Furthermore, the LM (money market equilibrium) curve is M¯P=Y200i.M¯P=Y200i. The government is currently implementing a policy G¯=80,T¯=50G¯=80,T¯=50, and the central bank (CB) is supplying M¯=1000M¯=1000. Expected inflation is πe=0πe=0. Derive the IS curve. It should be written in the form Y=A−BiY=A−Bi, that is, you only need to solve for the values of A=A=Answer and B=B=Answer.
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Consider an economy with a constant nominal money supply, a constant level of real output Y=100, and a constant real interest rate r =0.10. Suppose that the income elasticity of money demand is 0.5 and the interest elasticity of money demand is -0.1. A. By what percentage does the equilibrium price level differ from its initial value if output increases to Y=106 (and r remains a 0.10)? B. By what percentage does the equilibrium price level differ from its initial value if the real interest rate increases to r=0.11 (and Y remains at 100)? C. Suppose that the real interest rate increases to r=0.11. What would real output have to be for the equilibrium price level to remain at its initial value? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
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