In a particular economy the real money demand function is
Md/P = 200 + 0.2Y - 2000i
Assume that M = 300, P = 2.0, and πe = 0.05.
a. What is the real interest rate r that clears the asset market when Y = 500? when Y = 600? Graph the LM curve.
b. Repeat part (a) for M - 360. How does the LM curve in this case compare with the LM curve in part (a)?
c. Use M = 300 again and repeat part, (a) for ne = 0.04. Compare the LM curve in this case with the one in part (a).