The money supply M is determined by the Central Bank, and the money demand L is...

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The money supply M is determined by the Central Bank, and the money demand L is positively related to the general price level p(t) and the real output level Y. Inflation is the positive change in the general price level, dp/dt, and therefore, is closely associated with the excess money supply. The model can be written as follows L=ap(t)Y a > 0 dp =j(M-L) j>0 dt where a and j are positive constants. (a) What is the time path of price p(t)? (Hint: Write the model as a differential equation in the form of y+ay=b) (b) What is the intertemporal equilibrium of price (Hint: The level at which the model reaches equilibrium is asked. The reaches intertemporal equilibrium p" when the price level is fixed (no longer changes), dp=0.) dt (c) Fiyat Obtain and interpret the solution of the time path you created for the price. (Hint: Solve the equation you found in part(a), put the p" term in the appropriate place in the solution, and interpret the solution according to the departure from equilibrium.) The money supply M is determined by the Central Bank, and the money demand L is positively related to the general price level p(t) and the real output level Y. Inflation is the positive change in the general price level, dp/dt, and therefore, is closely associated with the excess money supply. The model can be written as follows L=ap(t)Y a > 0 dp =j(M-L) j>0 dt where a and j are positive constants. (a) What is the time path of price p(t)? (Hint: Write the model as a differential equation in the form of y+ay=b) (b) What is the intertemporal equilibrium of price (Hint: The level at which the model reaches equilibrium is asked. The reaches intertemporal equilibrium p" when the price level is fixed (no longer changes), dp=0.) dt (c) Fiyat Obtain and interpret the solution of the time path you created for the price. (Hint: Solve the equation you found in part(a), put the p" term in the appropriate place in the solution, and interpret the solution according to the departure from equilibrium.)

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Money Supply and Price Level Model a Time Path of Price pt To find the time path of pricewe need to rewrite the model as a differential equation in th... View the full answer