Question: 2. Suppose the money demand function is M d /P = 1000 + 0.2 Y - 1000 ( r + e ). (a) Calculate velocity

2. Suppose the money demand function is

M^d/P = 1000 + 0.2Y - 1000 (r + ^e).

(a) Calculate velocity if Y = 2000, r = .06, and ^e= .04.

(b) If the money supply (M^s) is 2600, what is the price level?

(c) Now suppose the real interest rate rises to 0.11, but Y and M^sare unchanged.What happens to velocity and the price level? So, if the nominal interest rate wereto rise from 0.10 to 0.15 over the course of a year, with Y remaining at 2000, whatwould the inflation rate be?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!

Suppose the money demand function is M d / P = 2 0 0 0 + 0 . 2 Y - 1 0 0 0 ( r + e ) . ( a ) Calculate velocity if Y = 4 0 0 0 , r = . 0 6 , and e = . 0 4 . ( b ) If the money supply ( M s ) is 3 9 0...

Suppose the money demand function is Md / P = 1000 + 0.2 Y - 1000 ( r + e ). a) Calculate velocity if Y = 2000, r = .06, and e = .04. b) If the money supply ( Ms ) is 2600, what is the price level?...

Please answer this question in complete detail. also show working and tables where it is necesary. and also show every process and each steps. Q5 (5 marks) Page 3 of 4 Suppose the money demand...

1 . Consider an economy with the money demand function is ( Y ) d Y a . b . c . d . e . Calculate velocity if the nominal interest rate ( j ) is I percent. Assume output ( Y ) is I units and the...

Please answer the following questions. Based on Canadian Economy. Use Graphs where requested. Aggregate Demand I: Building the IS-LM Model Ch. 11 QR 1. Use the Keynesian cross to explain why fiscal...

please answer 4. Suppose the money demand function is Md P = 1000 + 0.2Y 1000 (r + pe). I. Calculate velocity if Y = 2000, r = .06, and pe = .04. II. If the money supply (Ms) is 2600, what is the...

Consider an economy where rational expectations hold. Let y, m, and p be the logs of real output, money stock and price level in period t respectively. Suppose that the following relationships hold:...

Below is a economics exam question. Please can you answer it. I have also attached solutions to a similar question which should help you to answer this. Consider an economy where rational...

Suppose the money demand function is a. Calculate velocity if \(Y=2000, r=.06\), and \(\pi^{e}=.04\). b. If the money supply \(\left(M^{s} ight)\) is 2600 , what is the price level? c. Now suppose...

Q3(Ch-5, Inflation): Consider following money demand function, Y (M/P) = 0.25 * 10.5 . Derive an expression for the velocity of money. What does velocity depend on? intu- itively, why? Calculate...

C Ltd. forfeited 50 shares of Rs 100 each issued at 10% premium on which allotment money of Rs 30 per share (including premium) and first call of Rs 30 per share were not received, the second & final...

Analyze the relationship between the amount of time reading news on the Internet and reading news in a printed newspaper. Does it appear that they are linearly related?

File a lawsuit using Assessment of Damages Capital Markets and Medical Care: How Wall Street Invented Physician Management Companies in the 1 9 9 0 s

It is related to career planning and at least 150 words \f

=+ a. What happens to the labor demand curve?

=+to work more, because the reward for working an additional hour has risen (equivalently, the opportunity cost of leisure has gone up). Apply these concepts to Blanchards hypothesis about

=+ b. How would this change in productivity affect the labor marketthat is, employment, unemployment, and real wagesif the labor market is always in equilibrium?