Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 9, Problem 2NP
a)
To determine
To describe: The real interest rate is to be calculated where M = 6000,
b)
To determine
To describe: The real interest rate is to be calculated where M = 6600 and the graph of LM curve is also to be drawn. This graph is also to be compared with the above graph.
c)
To determine
To describe: The real interest rate is to be calculated where M = 6000,
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In a particular economy the real money demand function is
Md/P = 300 +0.1Y - 10000i
Assume that M = 6000, P = 2, and πe = 0.02.
a. What is the real interest rate, r, that clears the asset market when Y = 8000? When Y = 9000? Graph the LM curve.
b. Repeat Part (a) for M = 6600. How does the LM curve in this case compare with the LM curve in Part (a)?
c. Use M = 6000 again and repeat Part (a) for πe = 0.03. Compare the LM curve in this case with the one in Part (a).
Is an increase in real interest rate always proportional to an increase in the growth rate of money supply (long run)?
What is the diference between a real interest rate and a nominal interest rate?What is the intuition behind the Fisher equation?
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