Consider an economy with a constant nominal money supply, a constant level of real output Y=100, and
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Question:
Consider an economy with a constant nominal money supply, a constant level of real output Y=100, and constant interest rate 10%. suppose that the income elasticity of money demand is 0.5 and interest elastically of money demand is 0.1.
a. by what percentage does equilibrium price level differ from its initial value if the real interest rate increase to r=0.11
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