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Please don't forget doing part d and please type the answer Assume the real money demand function is L(Y, i) = 2000 + 0.3Y -
Please don't forget doing part d and please type the answer
Assume the real money demand function is L(Y, i) = 2000 + 0.3Y - 5000i where Y is real output, P is the price level, i is the nominal interest rate on non- monetary assets and monetary assets earn no interest. 3 = a) Assuming that the asset market is in equilibrium at i = 0.05. Find equilibrium levels of the real money supply, the nominal money supply, and the velocity of money if P = 100, and Y 2000. (Note: please round your answers to the nearest three decimal places for all parts of this question.) b) Find the real income elasticity of money demand at the equilibrium level of money balances found in the previous part. n c) The rate of inflation in this economy is defined as the growth rate of the nominal money supply minus an adjustment for the growth rate of real money demand arising from growth in real output: AM AY = M Assume that real income is expected to grow by 5% over the next year, and the interest rate remains constant. Find out how much the central bank should increase the money supply if it pursues an inflation target of zero inflation for next year. d) Does the quantity theory of money hold in this economy? State your reason by con- sidering the new level of money supply in the last part and other given information in the above partsStep by Step Solution
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