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In a particular economy the real money demand function is: Md/P = 3000 + 0.1Y 10,000i M = 6000, P = 2.0, e= 0.02. (a)
In a particular economy the real money demand function is: Md/P = 3000 + 0.1Y 10,000i M = 6000, P = 2.0, e= 0.02. (a) What is the real interest rate, r, that clears the asset market when Y = 8000? When Y = 9000? Graph the LM curve. (b) Repeat Part (a) for M = 6600. How does the LM curve in this case compare with the LM curve in Part (a)? (c) Use M = 6000 again and repeat Part (a) for e= 0.03. Compare the LM curve in this case with the one in Part (a).
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