Unformatted text preview: levies a per worker tax of t . Show graphically what happens in the Solow model. 4 Chapter 7, numerical problem 1 Money demand in an economy in which no interest is paid on money is M d P = 500 + 0 . 2 Y-1000 i a.) Suppose that P = 100, Y = 1 , 000 and i = 10%. Find real money demand, nominal money demand, and velocity. b.) The price level doubles from P = 100 to P = 200. Find real money demand, nominal money demand, and velocity. c.) Starting from the values of the variables given in Part (a) and assuming that the money demand fucntion as written holds, determine how velocity is aﬀected by an increase in real income by an increase in the nominal interest rate and by and increase in the price level. 1...
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- Spring '08
- Economics, Stock and flow, population growth rate, money demand