Explain the importance of elasticity of supply in decision making. (6 marks)
(b) Examine five factors that limit the effectiveness of the monetary policies in developing countries. (5 marks)
(c) You are given the following information about the commodity and Money markets of a closed economy without
government intervention:
The commodity market Consumption function:
C = 50 + 2/5Y
Investment function:
I = 790 – 21r
The Money Market:
Precautionary and Transactions demand for money MDT = 1/6 Y
Speculative demand for money MDS = 1200 -18r
Money supply MS = 1250
Required:
Determine the equilibrium levels of income and interest rate for this economy.

Answer rating: 100% (QA)

The detailed answer for the above question is provided below a Elasticity of supply is a measure of the responsiveness of the quantity supplied of a p... View the full answer