Consider an economy with constant nominal money supply M=100, constant real output Y = 100, and constant real interest rater = 0.1. Suppose that the income elasticity of money demand is 0.5 and the interest rate elasticity of money demand is -0.1. Also assume that expected inflation is zero and does not change (TTe = 0). This implies that the nominal interest rate is equal to the real interest rate. By what percentage does the equilibrium price level differ from its initial value if output increases to Y = 120, money supply doubles but r remains at 0.1? O A. 50% O B. 3% O C.0.9% O D.90%

Consider an economy with constant nominal money supply M=100, constant real output Y = 100, and constant real interest rater = 0.1. Suppose that the income elasticity of money demand is 0.5 and the interest rate elasticity of money demand is -0.1. Also assume that expected inflation is zero and does not change (TTe = 0). This implies that the nominal interest rate is equal to the real interest rate. By what percentage does the equilibrium price level differ from its initial value if output increases to Y = 120, money supply doubles but r remains at 0.1? O A. 50% O B. 3% O C.0.9% O D.90%

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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