6. Assume that the demand for real money balance (M/P) is M/P = 0.6Y- 100i, where Y is national income, and i is the nominal interest rate (in percent). The real interest rate, r, is fixed at 3 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth. a. If Y= 1000, M-300, and the growth rate of nominal money= 1%, what must i and P be? b. If Y=1000, M-300, and the growth rate of nominal money is 2%, what must i and P be?

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6. Assume that the demand for real money balance (M/P) is M/P = 0.6Y– 100i, where Y is
national income, and i is the nominal interest rate (in percent). The real interest rate, r, is fixed
at 3 percent by the investment and saving functions. The expected inflation rate equals the rate
of nominal money growth.
a. If Y= 1000, M=300, and the growth rate of nominal money= 1%, what must i and P be?
b. If Y=1000, M=300, and the growth rate of nominal money is 2%, what must i and P
be?
Transcribed Image Text:6. Assume that the demand for real money balance (M/P) is M/P = 0.6Y– 100i, where Y is national income, and i is the nominal interest rate (in percent). The real interest rate, r, is fixed at 3 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth. a. If Y= 1000, M=300, and the growth rate of nominal money= 1%, what must i and P be? b. If Y=1000, M=300, and the growth rate of nominal money is 2%, what must i and P be?
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