Question: The real money demand function is given by (M^d)/P = Y^13 / (1+i)^2 where M^d is nominal money demand, P is the price level, Y
The real money demand function is given by
(M^d)/P = Y^13 / (1+i)^2
where M^d is nominal money demand, P is the price level, Y is the income level, i is the nominal interest rate. Suppose the growth rate of income is 3%: The real interest rate changes from 1% to 2% and the expected inflation rate changes from 1% to 2%: If the central bank targets a 5% inflation rate, what should be the growth rate of money supply?
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