Question: please help me with this question!! 10. The demand for money is Md/P = L(Y, i), where L(Y,i) is an increasing function of real income

please help me with this question!!

please help me with this question!! 10. The demand for money is

10. The demand for money is Md/P = L(Y, i), where L(Y,i) is an increasing function of real income Y. Fori > 0, money demand is decreasing in the nominal interest rate i. Money demand becomes perfectly interest elastic ati = 0. The price level is P. (a) [2 marks] Give a brief justification of each of the properties of the money demand function assumed above. The LM curve represents money market equilibrium (Md = M3). Assume the cen tral bank targets a constant money supply M5 and that the price level P is fixed. (b) [3 marks] Show how the LM curve is derived from money-market equilibrium. Illustrate the LM curve, taking account of its shape where i = 0. Suppose that owing to tighter lending criteria, rms' investment demand is lower (treat this as affecting the autonomous component of investment demand). (c) [3 marks] Using the IS-LM model, show how this can result in the interest rate ifalling to zero. If that happens, explain why the model predicts the economy enters a liquidity trap where conventional monetary policy is ineffective. Now consider the AD-AS model where nominal wages are xed in the short run at a level where labour demand is less than desired labour supply. (d) [3 marks] Explain how the shape of the AD curve is affected by the liquidity trap. Following the negative shock to investment demand, can lower prices P mitigate the fall in real GDP found in part (c)

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