9. The Liquidity Function is given by L(Y,i) = Y*/(10i). The real interest rate is 4%, the expected rate of inflation is 2.4%, the price level is 4 and the nominal money supply is 50. a) What is the equilibrium level of real GDP in the economy. b) What is the value of 'real money' in the economy (Note: the real wage is w-W/P, and real income is YEAL = Y/P)? What is the level of velocity in the economy (velocity is the average number of times a unit of currency is used in transactions in the economy. It measures the speed of circulation of a currency. For instance, if nominal GDP is 10,000 and there are 1000 one-dollar bills, then each dollar bill would be used ten times, on average.)
9. The Liquidity Function is given by L(Y,i) = Y*/(10i). The real interest rate is 4%, the expected rate of inflation is 2.4%, the price level is 4 and the nominal money supply is 50. a) What is the equilibrium level of real GDP in the economy. b) What is the value of 'real money' in the economy (Note: the real wage is w-W/P, and real income is YEAL = Y/P)? What is the level of velocity in the economy (velocity is the average number of times a unit of currency is used in transactions in the economy. It measures the speed of circulation of a currency. For instance, if nominal GDP is 10,000 and there are 1000 one-dollar bills, then each dollar bill would be used ten times, on average.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:9. The Liquidity Function is given by L(Y,i) = Y*/(10i) . The real interest rate is 4%, the expected rate
of inflation is 2.4%, the price level is 4 and the nominal money supply is 50.
a) What is the equilibrium level of real GDP in the economy.
b) What is the value of 'real money' in the economy (Note: the real wage is w=W/P, and real
income is YREAL = Y/P)? What is the level of velocity in the economy (velocity is the average
number of times a unit of currency is used in transactions in the economy. It measures the speed
of circulation of a currency. For instance, if nominal GDP is 10,000 and there are 1000 one-dollar
bills, then each dollar bill would be used ten times, on average.)
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