3. An economy has the following money demand function: (M/P)d = 0.5Y/i0.5 (a) Derive the function...

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3. An economy has the following money demand function: (M/P)d = 0.5Y/i0.5 (a) Derive the function of velocity and explain the intuition. (b) Calculate velocity if the nominal interest rate i is 1 percent (i.e., 0.01). (c) If output Y is 1,000 units and the money supply M is $1,200, then what is the price level (the nominal interest rate is still 1 percent)? (d) Suppose the appointment of a new central bank governor increases the expected inflation rate by five percentage points. What is the new nominal interest rate according 3. An economy has the following money demand function: (M/P)d = 0.5Y/i0.5 (a) Derive the function of velocity and explain the intuition. (b) Calculate velocity if the nominal interest rate i is 1 percent (i.e., 0.01). (c) If output Y is 1,000 units and the money supply M is $1,200, then what is the price level (the nominal interest rate is still 1 percent)? (d) Suppose the appointment of a new central bank governor increases the expected inflation rate by five percentage points. What is the new nominal interest rate according

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Answer a MP d 05Yi 05 We know when money market is in equilibrium Money demandmoney supply Mo... View the full answer