Suppose a country has a money demand function (M/P)ª = kY, where k is a constant parameter. The money supply grows by %3D 12 percent per year, and real income grows by 4 percent per year. a) What is the average inflation rate? b) How would inflation be different if real income growth were higher? Explain c) How do you interpret the parameter k? What is it's relationship to the velocity of money?

Suppose a country has a money demand function (M/P)ª = kY, where k is a constant parameter. The money supply grows by %3D 12 percent per year, and real income grows by 4 percent per year. a) What is the average inflation rate? b) How would inflation be different if real income growth were higher? Explain c) How do you interpret the parameter k? What is it's relationship to the velocity of money?

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter15: The Debate Over Monetary And Fiscal Policy

Section: Chapter Questions

Problem 1TY

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