Assume the real money demand function is L(Y, i)=2000+ 0.3Y-5000i where Y is real output, P...

  

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Assume the real money demand function is L(Y, i)=2000+ 0.3Y-5000i where Y is real output, P is the price level, i is the nominal interest rate on non-monetary assets, and monetary assets earn no interest. a) Assuming that the asset market is in equilibrium at i = 0.05. Find the equilibrium levels of the real money supply, M/P, the nominal money supply, M, and the velocity of money, V, if P = 100, and Y = 2000. (Note: please round your answers to the nearest three decimal places for all parts of this question.) b) Find the real income elasticity of money demand at the equilibrium level of money balances found in part a). c) The rate of inflation in this economy is defined as the growth rate of the nominal money supply minus an adjustment for the growth rate of real money demand arising from growth in the real output: AM M-ny Y Assume that real income is expected to grow by 5% over the next year, the interest rate remains constant, and the income elasticity of real money demand equals the value found in part b). Find out how much the central bank should increase the nominal money supply if it pursues an inflation target of zero inflation for the next year. Also, find the new level of nominal money supply in this economy. d) Does the quantity theory of money hold in this economy? State your reason by considering the new level of nominal money supply in part c) and given that P = 100, and Y = 2000. Assume the real money demand function is L(Y, i)=2000+ 0.3Y-5000i where Y is real output, P is the price level, i is the nominal interest rate on non-monetary assets, and monetary assets earn no interest. a) Assuming that the asset market is in equilibrium at i = 0.05. Find the equilibrium levels of the real money supply, M/P, the nominal money supply, M, and the velocity of money, V, if P = 100, and Y = 2000. (Note: please round your answers to the nearest three decimal places for all parts of this question.) b) Find the real income elasticity of money demand at the equilibrium level of money balances found in part a). c) The rate of inflation in this economy is defined as the growth rate of the nominal money supply minus an adjustment for the growth rate of real money demand arising from growth in the real output: AM M-ny Y Assume that real income is expected to grow by 5% over the next year, the interest rate remains constant, and the income elasticity of real money demand equals the value found in part b). Find out how much the central bank should increase the nominal money supply if it pursues an inflation target of zero inflation for the next year. Also, find the new level of nominal money supply in this economy. d) Does the quantity theory of money hold in this economy? State your reason by considering the new level of nominal money supply in part c) and given that P = 100, and Y = 2000.

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Lets address each part of the question c To find out how much the central bank should increase the n... View the full answer