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HW8_Ch7

# HW8_Ch7 - Name Section Number Recitation Leader's Name...

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Name: ____________________________________ Section Number: ____ Recitation Leader’s Name: _____________________________ Homework 8, Due April 9 at the beginning of class 1. Suppose the money demand function is given by M d / P = 750 + .2 Y – 4000( r + π e ) Suppose that the central bank changes the money supply based on the actual inflation rate and the level of income: M s = 2455 +.1 Y – 3000 π . a. If the actual rate of inflation equals the expected rate of inflation equals .04, Y = 1150 and r = .03, calculate the price level. b. If actual inflation decreases to .02 while the other variables remain as in part (a). Calculate the price level. c. If the expected rate of inflation decreases to .02 while the other variables remain as in part (a), calculate the price level. /40

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2. The following equations characterize a country’s economy. Production function : Y = A · K · N –N 2 . Marginal product of labor : MPN = A · K – 2N. where A = 6 and K = 40. Labor supply : N S = 20 + 2w. Desired Consumption : C d = 1000 + .6Y – 2000r
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HW8_Ch7 - Name Section Number Recitation Leader's Name...

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