Consider an economy with a constant nominal money supply, a constant level of real output Y=100, and a constant real interest rate r =0.10. Suppose that the income elasticity of money demand is 0.5 and the interest elasticity of money demand is -0.1. A. By what percentage does the equilibrium price level differ from its initial value if output increases to Y=106 (and r remains a 0.10)? B. By what percentage does the equilibrium price level differ from its initial value if the real interest rate increases to r=0.11 (and Y remains at 100)? C. Suppose that the real interest rate increases to r=0.11. What would real output have to be for the equilibrium price level to remain at its initial value?
Consider an economy with a constant nominal money supply, a constant level of real output Y=100, and a constant real interest rate r =0.10. Suppose that the income
A. By what percentage does the
B. By what percentage does the equilibrium price level differ from its initial value if the real interest rate increases to r=0.11 (and Y remains at 100)?
C. Suppose that the real interest rate increases to r=0.11. What would real output have to be for the equilibrium price level to remain at its initial value?
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