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Question 3 {15 points] Suppose that the demand for real money balances is given by: L(Y,z') = 2(1 + i)_2Y2 a) Suppose that the expected

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Question 3 {15 points] Suppose that the demand for real money balances is given by: L(Y,z') = 2(1 + i)_2Y2 a) Suppose that the expected inflation rate is equal to 2% and full employment output is 10. The real interest rate is 3%. Money supply is set by the Central Bank and is equal to 100. What is the price level in an asset market equilibrium? b) Suppose that real output goes up by 5%. What will be the impact on demand for real money balances? c} Suppose that the money supply goes up to 150. What will output and inflation be if the price level can adjust? d} Suppose that output grows at a rate of 2% per year and the nominal interest rate decreases from 10% to 5%. What must be the growth rate of money supply if the Central Bank targets 2% inflation

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