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Recall the analysis of equilibrium in the money market you learned in class. Assume that the coefficients determining the demand for real money are constant.
Recall the analysis of equilibrium in the money market you learned in class. Assume that the coefficients determining the demand for real money are constant. If the nominal supply of money and the price level are fixed but real GDP (Q) grows due to innovations and productivity growth, the nominal interest rate is likely to rise due to which of the following reasons: (select and explain your answer): a. People would want to buy more bonds. b. People would have a higher demand for money to accommodate a larger volume of expected transactions, but the supply of money is fixed by the FED, so the interest rate rises to ration the demand for money. c. The real value of money falls because of the rise in the price level inflation. d. The velocity of money rises
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