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Answer Exercise 10.3 on page 210 of Champ, Freeman, and Haslag. Rather than focusing on the impact (or not) of the exogenous change on the
Answer Exercise 10.3 on page 210 of Champ, Freeman, and Haslag. Rather than focusing on the impact (or not) of the exogenous change on the equilibrium rate of return, focus instead on how it affects the allocation of real balances and deposits and hence on the total amount of capital.10.3. In each of the following instances, an exogenous change is described. Use a graphto show how the particular exogenous change can result in an increase in the equilibrium return on deposits. a. A permanent increase in the money growth rate. b. A permanent increase in the productivity of capital c. A permanent decrease in the cost of identification to a bank. 104 Con
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