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. If Y is 1,000, M is 100, and the growth rate of nominal money is 1 percent, what must i and P be?
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. If Y is 1,000, M is 100, and the growth rate of nominal money is 1 percent, what must i and P be?
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter14: Money And The Economy
Section: Chapter Questions
Problem 5WNG
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