Suppose the money demand function is

a. Calculate velocity if \(Y=2000, r=.06\), and \(\pi^{e}=.04\).
b. If the money supply \(\left(M^{s}\right)\) is 2600 , what is the price level?
c. Now suppose the real interest rate rises to 0.11 , but \(Y\) and \(M^{S}\) are unchanged. What happens to velocity and the price level? So if the nominal interest rate were to rise from 0.10 to 0.15 over the course of a year, with \(Y\) remaining at 2000, what would the inflation rate be?

Transcribed Image Text:

Md 1000 0.2Y 1000 (r + ). P