For simplicity, we hold the price level fixed at 1 and assume that inflationary expectations are fixed
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Question:
For simplicity, we hold the price level fixed at 1 and assume that inflationary expectations are fixed at 2%.
Initial Conditions before the fall of 2008
mm = money multiplier = 1.6
MB = monetary base = 900
Money Demand
Md = P X [ a0 + .5 (Y) - 200 (i) ]
Md = 1 X [ 200 + .5 (3600) - 200 (i) ]
Solve for the money market clearing rate of interest (show your work on your exam sheet). Now draw a money market diagram labeling this initial equilibrium in the money market as point A on your exam sheet.
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
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