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Consider the money demand curve (solid line) and the social money demand curve (dash line) in Figure 1 where z=real balances (the real value of
Consider the money demand curve (solid line) and the social money demand curve (dash line) in Figure 1 where z=real balances (the real value of buyers money holding).
(e) Find a curve that fits the money demand data in (d) (you can either use a straight line or a polynominal function). Use this as your estimate of the money demand curve.
(f) Using your estimate in (e), what is the change in the ratio M/y as the Federal Reserve raises the interest rate i from 1% to 2%? What is the loss in buyers surplus?
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