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Question 3A L(Y,i) = 700+ 0.1Y-5000i Given: e r = 0.05,i=r+π p = 2, = 0.05 +0.05y = 2000, i = 0.1 π :. nominal money demanded = 800 m nominal money demanded d = 800,:. = 800 v = p*y 2*2000 4000 => = = >=5,. velocity d 800 800 m d d S = 5 Therefore m = 800, m = 800 P Question 3 B: Elasticity of money demanded at equilibrium level of money balance found in m m = 400, = 400 P delL(y,i). delL A. L 700+0.1(y) - 5000(i) => = 0.1 = dely de c) The rate of inflation in this economy is defined as the growth rate of the nominal money supply minus an adjustment for the growth rate of real money demand arising from growth in the real output: \pi = \Delta MM -\eta y\Delta YY Assume that real income is expected to grow by 8% over the next year, the interest rate remains constant, and the income elasticity of real money demand equals the value found in part b. Find out how much the central bank should increase the money supply if it pursues an inflation target of zero inflation for the next year. Also, find the new level of money supply in this economy.

Question 3A L(Y,i) = 700+ 0.1Y-5000i Given: e r = 0.05,i=r+π p = 2, = 0.05 +0.05y = 2000, i = 0.1 π :. nominal money demanded = 800 m nominal money demanded d = 800,:. = 800 v = p*y 2*2000 4000 => = = >=5,. velocity d 800 800 m d d S = 5 Therefore m = 800, m = 800 P Question 3 B: Elasticity of money demanded at equilibrium level of money balance found in m m = 400, = 400 P delL(y,i). delL A. L 700+0.1(y) - 5000(i) => = 0.1 = dely de c) The rate of inflation in this economy is defined as the growth rate of the nominal money supply minus an adjustment for the growth rate of real money demand arising from growth in the real output: \pi = \Delta MM -\eta y\Delta YY Assume that real income is expected to grow by 8% over the next year, the interest rate remains constant, and the income elasticity of real money demand equals the value found in part b. Find out how much the central bank should increase the money supply if it pursues an inflation target of zero inflation for the next year. Also, find the new level of money supply in this economy.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question 3A L(Y,i) = 700+ 0.1Y-5000i Given: e r = 0.05,i=r+π p = 2, = 0.05 +0.05y = 2000, i = 0.1 π :. nominal money demanded = 800 m nominal money demanded d = 800,:. = 800 v = p*y 2*2000 4000 => = = >=5,. velocity d 800 800 m d d S = 5 Therefore m = 800, m = 800 P Question 3 B: Elasticity of money demanded at equilibrium level of money balance found in m m = 400, = 400 P delL(y,i). delL A. L 700+0.1(y) - 5000(i) => = 0.1 = dely de c) The rate of inflation in this economy is defined as the growth rate of the nominal money supply minus an adjustment for the growth rate of real money demand arising from growth in the real output: \pi = \Delta MM -\eta y\Delta YY Assume that real income is expected to grow by 8% over the next year, the interest rate remains constant, and the income elasticity of real money demand equals the value found in part b. Find out how much the central bank should increase the money supply if it pursues an inflation target of zero inflation for the next year. Also, find the new level of money supply in this economy.
Transcribed Image Text:Question 3A L(Y,i) = 700+ 0.1Y-5000i Given: e r = 0.05,i=r+π p = 2, = 0.05 +0.05y = 2000, i = 0.1 π :. nominal money demanded = 800 m nominal money demanded d = 800,:. = 800 v = p*y 2*2000 4000 => = = >=5,. velocity d 800 800 m d d S = 5 Therefore m = 800, m = 800 P Question 3 B: Elasticity of money demanded at equilibrium level of money balance found in m m = 400, = 400 P delL(y,i). delL A. L 700+0.1(y) - 5000(i) => = 0.1 = dely de c) The rate of inflation in this economy is defined as the growth rate of the nominal money supply minus an adjustment for the growth rate of real money demand arising from growth in the real output: \pi = \Delta MM -\eta y\Delta YY Assume that real income is expected to grow by 8% over the next year, the interest rate remains constant, and the income elasticity of real money demand equals the value found in part b. Find out how much the central bank should increase the money supply if it pursues an inflation target of zero inflation for the next year. Also, find the new level of money supply in this economy.
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