# 10H6 - Econ 102 Homework 6 Due No late answer 1 Show your...

This preview shows pages 1–2. Sign up to view the full content.

Econ. 102. Homework 6. Due: April 12, 2010. No late answer. *******. 1. Show your derivation and calculation explicitly. 2. Use the ruler to draw graphs. (Also show the scale explicitly). 3. E-mail submission of your answer will not be accepted. 4. Do not copy someone else’s answer. ******. 1. The real interest rate (r) is equal to the nominal interest rate (i) minus the inflation rate ( π ) or (1) r = i - π , where π = P/P The Fisher equation is obtained by rearranging the preceding equation to obtain (2) i = r + π Assume that the growth rate of RGDP (Y) = 3% and velocity is constant, the quantity of money equation implies that (3) % change in P = % change in M - % change in Y or π = M/M - Y/Y If Y/Y =3%, it is easy to see that an increase in M/M of 4% causes a 1 % increase in π . According to the Fisher equation, this 1% increase in inflation rate ( π ) causes a 1% increase in i because the real interest rate (r) is presumed to be affected by real variables only. a.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 2

10H6 - Econ 102 Homework 6 Due No late answer 1 Show your...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online