B06-Tutorial2

Principles of Macroeconomics (with Xtra!)

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Page 1 of 1 THE UNIVERSITY OF TORONTO AT SCARBOROUGH Division of Management ECM B06H – Macroeconomic Theory and Policy: A Mathematical Approach TUTORIAL #2 Q1. Consider an economy is such that real output is growing at 5% each year, the real interest rate is constant at 4%, and the money supply is growing at 5% each year. The demand for money is given by: ( M d /P ) = k @ Y ( Suppose ( =1, and k = 1/V = a constant (where V is the income velocity of money). a) Calculate the rate of inflation and the nominal interest rate. b) Calculate the effect on the price level and the rate of inflation if the rate of growth of the money supply changes to 10% each year. Represent your answer in a graph (with horizontal axis=time). c) Calculate the effect on the price level and the rate of inflation if the rate of growth of output changes to 3%. d) Algebraically solve for the Aggregate Demand (AD) curve. Demonstrate that it is downward sloping in Y and what its shift factors are and their sign. [Hint: The ADdownward sloping in Y and what its shift factors are and their sign....
View Full Document

Ask a homework question - tutors are online