In a particular economy the real money demand function is [ frac{M^{d}}{P}=3000+0.1 Y-10,000 i ] Assume that
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In a particular economy the real money demand function is
\[ \frac{M^{d}}{P}=3000+0.1 Y-10,000 i \]
Assume that \(M=6000, P=2.0\), and \(\pi^{e}=0.02\).
a. What is the real interest rate, \(r\), that clears the asset market when \(Y=8000\) ? When \(Y=9000\) ? Graph the \(L M\) curve.
b. Repeat part (a) for \(M=6600\). How does the \(L M\) curve in this case compare with the LM curve in part \((a)\) ?
c. Use \(M=6000\) again and repeat part (a) for \(\pi^{e}=0.03\). Compare the \(L M\) curve in this case with the one in part (a).
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