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?

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?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Explain the effect of DEFLATION on the equilibrium interest rates using: а) Loanable Funds Theory. b) Keynes' Liquidity Preference Theory.
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Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
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An economy has full-employment output of 6,000. Government purchases, G, are 1,000. Desired consumption and desired investment are cd=3,800-2,000r +0.25Y, and = 1,200-3,000r, where Y is output and r is the real interest rate. a. Find an equation relating desired national saving, sd, to rand Y. sd = +r+y
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