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Consider the simple money market model discussed in the first slide set. Assume that the money demand function changes to L( i ,Y. t), where
Consider the simple money market model discussed in the first slide set. Assume that the money demand function changes to L( i ,Y. t), where i is the nominal interest rate, Y is income and t is a tax on capital gains. Explain in which direction money demand will most likely change in response to an increase in i, Y or t. Could changes in the capital gains tax be a real driver for permanent changes in the price level
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