Unformatted text preview: 1 : , and the monetary base is 60 . The real quantity of money demanded is L ( Y; i ) = 0 : 5 Y & 10 i where Y is real output and i is the nominal interest rate. Assume that expected in±ation is zero so that the nominal interest rate and the real interest rate are equal. (a) If r = i = 0 : 10 , what are the reserve-deposit ratio, the money multiplier, and the money supply? For what real output, Y , does a real interest rate of : 10 clear the asset market? (b) Repeat Part a: for r = i = 0 : 05 . (c) Suppose that the reserve-deposit ratio is &xed at the value you found in Part a: and isn²t a/ected by interest rates. If r = i = 0 : 05 , for what output, Y , does the asset market clear in this case? (d) Is the LM curve ±atter or steeper when the reserve-deposit ratio is &xed? Explain. 1...
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This note was uploaded on 03/10/2010 for the course ECON 3140 taught by Professor Mbiekop during the Spring '07 term at Cornell.
- Spring '07