Suppose the economy experiences a contraction in aggregate output. How would this event affect the demand curve for real money balances? On the graph from part (b) of Problem 6, draw the original and the new demand curve, if necessary

Data from Problem 6

Assume the demand for real money balances is given by 

(an interest rate of 2% is entered into this formula as 2). Suppose Y = 12,900 billion, so that 

– 150i (in billions of $).

Transcribed Image Text:

Md P 4/6 Y - 150i