B06-Tutorial2

# Principles of Macroeconomics (with Xtra!)

• Homework Help
• davidvictor
• 1

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

Page 1 of 1 T HE U NIVERSITY OF T ORONTO AT S CARBOROUGH 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 AD
This is the end of the preview. Sign up to access the rest of the document.
• '
• NoProfessor
• Inflation, Inflation rates, price level, ex ante inflation

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern