Question: 1. Consider the following real money demand function: L(Y,r + He) = 100 + 10 Y 100 1'. Nominal money supply is 1000. a. Assume

1. Consider the following real money demand function: L(Y,r + He) = 100 + 10 Y 100 1'. Nominal money supply is 1000. a. Assume that Y = 100 and r = 1. Compute the price level in equilibrium. b. Suppose that the monetary authority doubles nominal money supply through an open market purchase. Repeat part a. What happens to the price level? Is money neutral? c. Now assume instead that the price level is xed at the value you computed in part a. Consider an increase in nominal money supply to 1010, and x the value of income again at Y = 100. What is the equilibrium value of r? (1. Draw a graph of the money market equilibrium illustrating all the cases computed in parts a, b, and c

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