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Question 6 { 18 points). An economy begins in long-run equilibrium, and then a change in government regulations allow banks to start paying interest on

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Question 6 { 18 points). An economy begins in long-run equilibrium, and then a change in government regulations allow banks to start paying interest on chequing accounts. Recall that the money stock is the sum of currency and demand deposits, including chequing accounts, so this regulatory change makes holding money more attractive. a. How does this change affect the demand for money (5 points)? b. What happens to the velocity of money (6 points)? c. If the central bank keeps the money supply constant, what will happen to output and prices in the short run and in the long run (7 points}

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