Consider the model of money demand we saw in class. Let the elasticity of money demand with respect to real income be 0.8 and the elasticity of money demand with respect to the interest rate on non- monetary assets be -0.2. Imagine that real income increased by 2.75% and nominal interest rate on non-monetary assets increased by 0.2%. Also, suppose that the central bank wants inflation to be below 2%. If the central bank increased money supply by 4.2%, was it able to achieve its inflation target?
Consider the model of money demand we saw in class. Let the elasticity of money demand with respect to real income be 0.8 and the elasticity of money demand with respect to the interest rate on non- monetary assets be -0.2. Imagine that real income increased by 2.75% and nominal interest rate on non-monetary assets increased by 0.2%. Also, suppose that the central bank wants inflation to be below 2%. If the central bank increased money supply by 4.2%, was it able to achieve its inflation target?
Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter14: Modern Macroeconomics And Monetary Policy
Section: Chapter Questions
Problem 15CQ
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