Suppose that money supply increases at the rate of 5 percent per year and the real GDP grows at the rate of 3 percent per year. Suppose also that the real interest rate is constant at 1 percent per year. Finally, assume that the velocity is constant. These numbers indicate that the one-year nominal interest rate must be around percent per year. Note: In the real world there are many different interest rates because there are many different bonds and loans. However, as we will see later, most interest rates move up and down together even though they might be different from each other For this reason we can assume that there is just one

Suppose that money supply increases at the rate of 5 percent per year and the real GDP grows at the rate of 3 percent per year. Suppose also that the real interest rate is constant at 1 percent per year. Finally, assume that the velocity is constant. These numbers indicate that the one-year nominal interest rate must be around percent per year. Note: In the real world there are many different interest rates because there are many different bonds and loans. However, as we will see later, most interest rates move up and down together even though they might be different from each other For this reason we can assume that there is just one

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Suppose the LM curve is given by (M/P) = d,Y – d̟i . The slope of the LM curve is . If d, is small, i.e. if money demand is. very sensitive) to the level of income, then an increase in income will cause a _(sensitive /not _(small /large) increase in money demand and only a _ (small /large) increase in the interest rate is necessary to restore equilibrium in the money market: the LM curve is relatively _(flat /steep). Similarly, if d, is small, i.e. if the quantity of money demanded is (sensitive /not very sensitive) to the interest rate, then an increase in income will increase money demand and it requires a (small /large) increase in the interest rate to restore equilibrium in the money market: the LM curve is relatively _(flat /steep). 2. For this question, assume that Y = N. Based on our understanding of the labor market model presented in Chapter 6, we know that a reduction in the markup will cause an/a _ (increase, reduction) in the natural level of output. 3. If u ? =?
Can you solve for d) please and thanks
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