Essay
Suppose the money demand function is Mᵈ/P = 1000 + 0.2Y - 1000i.
a.Calculate velocity if Y: 2000 and i = 0.10.
b.If the money supply (Mˢ)is 2600,what is the price level?
c.Now suppose the nominal interest rate rises to 0.15,but Y and Mˢ are unchanged.What happens to velocity and the price level? So if the nominal interest rate were to rise from 0.10 to 0.15 over the course of a year,with Y remaining at 2000,what would the inflation rate be?
Correct Answer:
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a.V = PY / M = Y / (M/P).From the money ...View Answer
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