4.1. Suppose that aggregate real demand for money (M/P) in Canada is a function of Canadian...

  

Transcribed Image Text:

4.1. Suppose that aggregate real demand for money (M/P) in Canada is a function of Canadian national income (Y) and interest rate (R) as follows: M/P=0.4Y-200R. The table below contains (hypothetical) values for Canadian national income (1) and real money supply (MSP) in each of two years. Year 1 2 National Income (1) 95 100 Real money supply (MS/P) 30 25 Equilibrium interest rate (R) a) For each of the 2 years calculate the equilibrium Canadian interest rate (R), where R is in decimal form. Enter those values in the column on the extreme right in the table. (3 marks) b) The diagram below shows the Canadian money demand and supply curves in Year 1. The changes between Year 1 and Year 2 in the table above lead to a shift of the real money demand curve to the (right/left) and a shift of the real money supply curve to the (right/left), resulting in excess real money existing interest rate R. (demand/supply) at the (3 marks) R R I MS/P M'IP M/P=L(R,Y) Real money holdings 4.1. Suppose that aggregate real demand for money (M/P) in Canada is a function of Canadian national income (Y) and interest rate (R) as follows: M/P=0.4Y-200R. The table below contains (hypothetical) values for Canadian national income (1) and real money supply (MSP) in each of two years. Year 1 2 National Income (1) 95 100 Real money supply (MS/P) 30 25 Equilibrium interest rate (R) a) For each of the 2 years calculate the equilibrium Canadian interest rate (R), where R is in decimal form. Enter those values in the column on the extreme right in the table. (3 marks) b) The diagram below shows the Canadian money demand and supply curves in Year 1. The changes between Year 1 and Year 2 in the table above lead to a shift of the real money demand curve to the (right/left) and a shift of the real money supply curve to the (right/left), resulting in excess real money existing interest rate R. (demand/supply) at the (3 marks) R R I MS/P M'IP M/P=L(R,Y) Real money holdings

Answer rating: 100% (QA)

a To calculate the equilibrium Canadian interest rate R for each year we can use the given equation ... View the full answer