help:
Consider an economy with a constant nominal money supply, a aconstant level of real output Y = 100, and a onstant real interest rate r = .10. Suppose that the income elasticity of money demand is .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.?
b) Suppose that the real interest rate increases to r = .11. What would real output have to be for the equilibrium price level to remain at its initial value?
thanks!
Consider an economy with a constant nominal money supply, a aconstant level of real output Y = 100, and a onstant real interest rate r = .10. Suppose that the income elasticity of money demand is .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.?
b) Suppose that the real interest rate increases to r = .11. What would real output have to be for the equilibrium price level to remain at its initial value?
thanks!