Money demand in an economy in which no interest is paid on money is Md/P =...
- Money demand in an economy in which no interest is paid on money is
Md/P = 5000 + 0.2Y + 1000i.
You know that P = 100, Y = 1000, and i = 0.10. Find
- real money demand.
- nominal money demand.
- money velocity.
Homework Answers
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Money demand in an economy in which no interest is paid on
money is
Md/P =...
4. Suppose money demand for Econland is (M/P)0 = 5000 + 0.2Y +1000i. a. Assume P=100,...
4. Suppose money demand for Econland is (M/P)0 = 5000 + 0.2Y +1000i. a. Assume P=100, Y=1000 and i=0.1. Find the real money demand, nominal money demand and velocity. b. If price level doubles from P=100 to P=200. Find the real money demand, nominal money demand and velocity, comment how these variables differ than in part (a).
The next several questions refer to the case of an economy with the following equations: Y...
The next several questions refer to the case of an economy with the following equations: Y = 50K0.3L0.7 with K=100 and L=100 G=1000, T=1000 I = 2000- 1000r C = 200 + 0.5(Y-T) real money demand: (M/P)d = 0.2Y - 1000r nominal money supply: M = 3200 (Assume a closed economy: Y = C + I + G. Assume the economy is in the long run equilibrium.) Compute the aggregate price level (P) ?
Consider a money demand function that takes the form (M/P)^d = Y/3i, where M is the...
Consider a money demand function that takes the form (M/P)^d = Y/3i, where M is the quantity of money, P is the price lelve, Y is real output, and i is the nominal interest rate (measured in percentage points.) a) If the economy is growing g% per year and velocity is growing twice as fast what are the growth rates in real money balances and the interest rate? b) Supposing the money supply is growing at 3% per year, what...
1. Consider a money demand function that takes the form (M/P)' = Y/3i, where Mis the...
1. Consider a money demand function that takes the form (M/P)' = Y/3i, where Mis the quantity of money, P is the price level, Y is real output, and i is the nominal interest rate (measured in percentage points). a. What is the velocity of money if the nominal interest rate is constant? b. How will the level of the velocity of money change if there is a permanent (one time) increase in the nominal interest rate, holding other factors...
3. An economy has the following money demand function: (M/P 2Y a. Derive an expression for...
3. An economy has the following money demand function: (M/P 2Y a. Derive an expression for the velocity of money. What does velocity depend on? Explain why this dependency may occur. b. Calculate velocity if the nominal interest rate i is 4 e. If output Y is 1,000 units and the money supply M d. Suppose the announcement of a new head of the percent. is $1,200, what is the price level P? central bank, with a reputation of being...
6) Suppose an economy is in its long-run equilibrium and the real money demand function for...
6) Suppose an economy is in its long-run equilibrium and the real money demand function for the economy is (M/P) d =0.2Y. Now suppose suddenly money demand becomes (M/P) d =0.4Y. a) Draw a graph and show the initial long-run equilibrium and then show the short-run equilibrium that would results from this change in money demand [Hint: You are drawing the graph from Chapter 10 but think about how this money demand change affects velocity from Chapter 5.] b) Assuming...
A. Assume that the demand for real money balance (M/P)d is M/P = 0.4Y – 10i....
A. Assume that the demand for real money balance (M/P)d is M/P = 0.4Y – 10i. National income is 30,000 and the price level is 100 and the growth rate of nominal money is 2 percent. The real interest rate r is fixed at 3 percent. Also assume that the expected inflation rate equals the rate of nominal money growth. B. What is the quantity of money in the economy?
· Inflation (Mankiw Ch. 5 #3). An economy has the following money demand function: (M/Pd =...
· Inflation (Mankiw Ch. 5 #3). An economy has the following money demand function: (M/Pd = .2Y/i1/2) a.) Derive an expression for the velocity of money. What does this velocity depend on? Explain why this dependency may occur. b.) Calculate the velocity if the nominal interest rate i is 4 percent. c.) Assume the nominal interest rate i is still 4 percent. If output Y is 1,000 units and the money supply M is $1,200, what is the price level...
Consider the following economy with: Real Money demand 〖 (M/P)〗^d = – 12 R + 0.38 Y Real Money supply (M^s/P)= 4510 De...
Consider the following economy with: Real Money demand 〖 (M/P)〗^d = – 12 R + 0.38 Y Real Money supply (M^s/P)= 4510 Derive the LM curve Derive the LM curve when the money supply increases by 680. Derive the LM curve when money supply decreases by 12% Compare the LM curves from a, b and c by graphing them using any graphing tool (excel preferably). Comment on the differences. Find the value of money demanded when income Y = 15,000...
7. Suppose that the money demand function takes the form (M/Pd = L(i, Y) = Y/(5)...
7. Suppose that the money demand function takes the form (M/Pd = L(i, Y) = Y/(5) a. If output grows at rate g, at what rate will the demand for real balances grow (assuming constant nominal interest rates)? b. What is the velocity of money in this economy? c. If inflation and nominal interest rates are constant, at what rate, if any, will velocity grow? d. How will a permanent (once-and-for-all) increase in the level of interest rates affect the...
4. Suppose money demand for Econland is (M/P)0 = 5000 + 0.2Y +1000i. a. Assume P=100, Y=1000 and i=0.1. Find the real money demand, nominal money demand and velocity. b. If price level doubles from P=100 to P=200. Find the real money demand, nominal money demand and velocity, comment how these variables differ than in part (a).
1. Consider a money demand function that takes the form (M/P)' = Y/3i, where Mis the quantity of money, P is the price level, Y is real output, and i is the nominal interest rate (measured in percentage points). a. What is the velocity of money if the nominal interest rate is constant? b. How will the level of the velocity of money change if there is a permanent (one time) increase in the nominal interest rate, holding other factors...
3. An economy has the following money demand function: (M/P 2Y a. Derive an expression for the velocity of money. What does velocity depend on? Explain why this dependency may occur. b. Calculate velocity if the nominal interest rate i is 4 e. If output Y is 1,000 units and the money supply M d. Suppose the announcement of a new head of the percent. is $1,200, what is the price level P? central bank, with a reputation of being...
· Inflation (Mankiw Ch. 5 #3). An economy has the following money demand function: (M/Pd = .2Y/i1/2) a.) Derive an expression for the velocity of money. What does this velocity depend on? Explain why this dependency may occur. b.) Calculate the velocity if the nominal interest rate i is 4 percent. c.) Assume the nominal interest rate i is still 4 percent. If output Y is 1,000 units and the money supply M is $1,200, what is the price level...
7. Suppose that the money demand function takes the form (M/Pd = L(i, Y) = Y/(5) a. If output grows at rate g, at what rate will the demand for real balances grow (assuming constant nominal interest rates)? b. What is the velocity of money in this economy? c. If inflation and nominal interest rates are constant, at what rate, if any, will velocity grow? d. How will a permanent (once-and-for-all) increase in the level of interest rates affect the...
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