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a) Given the following information, find the real interest rate in the economy, r %. The price level (P) is 2, real GDP (Y) is
a) Given the following information, find the real interest rate in the economy, r %. The price level (P) is 2, real GDP (Y) is 600, the quantity of money supplied into the economy (Ms) is 300, the liquidity function is L(Y,i) = 200 + 02N-2000, and the expected inflation rate is 5%. Draw the money market diagram labeling the axes, important curves, and indicating the appropriate equilibrium values b) Suppose that 1 year coupon bonds pay 3.25%, 2 year coupon bonds pay 3% per year, and 3 year coupon bonds pay 2.75% per year, and assume that the risk premium for one year bonds is .25%, increasing by .25% for each additional year of maturity, what are the expected risk adjusted interest rates for a: 1 year bond purchased in one year:_ 1 year bond purchased in two years
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