In a particular economy the real money demand function is Real Interest Rate, r (%) 0 45 M P 3,000 + 0.10Y- 9,000/. 0.40 0.35 Assume that M = 7,000 and P = 2. Initially, expected inflation, °was 0.02. Initially, when Y = 8000, the real interest rate of 0.013 cleared the asset market and 0.30 0.25 when Y = 9000, the real interest rate of 0.024 cleared the asset market. The initial LM curve is drawn as 0.20 LM,. 0.15 Now suppose that the expected inflation rate increases to 0.03. Using the new expected inflation rate, calculate the real interest rate that clears the asset market when Y = 8000. (Enter your answer in decimals, rounded to three decimals.) 0.10 LM, 0.05 0.00- r= This is point C. 6. 10

In a particular economy the real money demand function is Real Interest Rate, r (%) 0 45 M P 3,000 + 0.10Y- 9,000/. 0.40 0.35 Assume that M = 7,000 and P = 2. Initially, expected inflation, °was 0.02. Initially, when Y = 8000, the real interest rate of 0.013 cleared the asset market and 0.30 0.25 when Y = 9000, the real interest rate of 0.024 cleared the asset market. The initial LM curve is drawn as 0.20 LM,. 0.15 Now suppose that the expected inflation rate increases to 0.03. Using the new expected inflation rate, calculate the real interest rate that clears the asset market when Y = 8000. (Enter your answer in decimals, rounded to three decimals.) 0.10 LM, 0.05 0.00- r= This is point C. 6. 10

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.2P

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