AECO 301 Intermediate Macroeconomics
Spring 2010
Instructor: Yangyi Shan
Homework Assignment 5
Due Day: Tuesday, April 20, 2010 at the beginning of lecture
Instructions:
•
Please write your name, student ID and session number on the first page.
•
Please show your work.
•
Please put your answers in the order of the questions
•
Please staple your homework
1.
(10 points) Money demand in an economy in which no interest is paid on money is
M
d
/ P = 500 + 0.2Y – 1000i.
Suppose that P = 100, Y = 1000, and i = 0.10. Find real money demand, nominal money demand,
and velocity.
2. (10 points) Consider an economy with a constant nominal money supply, a constant level of real
output Y = 100, and a constant real interest rate r = 0.10. Suppose that the income elasticity of
money demand is 0.5 and the interest elasticity of money demand is 0.1.
a) By what percentage does the equilibrium price level differ from its initial value if output
increases to Y = 106 (and r remains at 0.10)?
b) By what percentage does the equilibrium price level differ from its initial value if the real interest
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 Spring '10
 TED
 Economics, Inflation, price level, money demand, real money demand

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