Problem 1An economy begins in long-run equilibrium, and then banks reducedeposit rate. Recall that the money stock is the sum of currency anddemand deposits.a) How does this change affect the demand for money and velocity?b) If the central bank keeps the money supply constant, what willhappen to output and prices in the short run and in the long run?c) If the goal of the central bank is to stabilize the price level, should thebank keep the money supply constant in response to this reduction? Ifnot, what should it do? Why?d) If the goal of the central bank is to stabilize output, how would youranswer to part (c) change?Use the AD-AS model.

An economy begins in long-run equilibrium, and then bank deposit rate. Recall that the money stock is the sum of cur demand deposits. a) How does this change affect the demand for money ane b) If the central bank keeps the money supply constant, w-

An economy begins in long-run equilibrium, and then bank deposit rate. Recall that the money stock is the sum of cur demand deposits. a) How does this change affect the demand for money ane b) If the central bank keeps the money supply constant, w-

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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Question

Problem 1
An economy begins in long-run equilibrium, and then banks reduce
deposit rate. Recall that the money stock is the sum of currency and
demand deposits.
a) How does this change affect the demand for money and velocity?
b) 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?
c) If the goal of the central bank is to stabilize the price level, should the
bank keep the money supply constant in response to this reduction? If
not, what should it do? Why?
d) If the goal of the central bank is to stabilize output, how would your
answer to part (c) change?
Use the AD-AS model.

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