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Suppose the Real Money Demand Function Is Mᵈ/P = 2000

Question 62

Multiple Choice

Suppose the real money demand function is Mᵈ/P = 2000 + 0.2Y - 10,000 (i - iᵐ) .Assume M = 5000,P = 2.0,iᵐ = .04,and πᵉ = .03.If Y were to increase from 4000 to 5000,then the real interest rate would increase by how many percentage points?


A) 2
B) 4
C) 5
D) 7

Correct Answer:

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