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Can I get an answer with explanations? 2. (10 pts) Suppose that the money demand function takes the form (M/P ) d = L (i,

Can I get an answer with explanations?

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2. (10 pts) Suppose that the money demand function takes the form (M/P ) d = L (i, Y) = Y/ (10i) a. If output grows at rate g and the nominal interest rate is constant, at what rate will the demand for real balances grow? b. What is the velocity of money in this economy? How will a permanent (once-and-for-all) increase in the level of interest rates affect the level of velocity? How will it affect the subsequent growth rate of velocity? d. If the central bank wants to achieve a long-run target inflation rate of IT , at what rate should the money supply grow

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