Unformatted text preview: , & e , and Y are unchanged)? 3. Suppose the money demand function is given by M d P = 640 + 0 : 1 Y & 5000( r + & e ) : Suppose the central bank changes the nominal money supply depending on income and in&ation: M s = 1000 + 0 : 1 Y & 4000 & . (a) If expected in&ation equals actual in&ation = 0 : 03 , Y = 1000 , and r = 0 : 02 , calculate the price level. (b) If in&ation rises to : 04 while the other variables remain as in part a., calculate the price level. (c) If expected in&ation rises to : 04 while the other variables remain as in part a, calculate the price level. (d) If the real interest rate rises to : 03 while the other variables remain as in part a, calculate the price level. 1...
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 Spring '07
 MBIEKOP
 Macroeconomics, Inflation, price level, money demand function

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