Macroeconomics
Homework #3
1.
Money demand in an economy in which no interest is paid on money is
paid on money is
=
+ .

MdP
500 0 2Y 1000i
.
a.
Suppose that
=
P
100
,
=
Y
1000
, and
= .
i
0 1
. Find real money demand,
nominal money demand , and velocity.
b.
The price level doubles from
=
P
100
to
=
P
200
. Find real money
demand, nominal money demand, and velocity.
c.
Starting from the values of the variables given in Part (a) and assuming
that the money demand function as written holds, determine how velocity
is affected by an increase in real income, by an increase in the nominal
interest rate, and by an increase in the price level.
2.
The production function in an economy is
=
(
 .
)
Y
A 5N 0 0025N2
, where
A
is productivity, with this production function, the marginal product of
labor is
=
 .
MPN
5A 0 005AN
. Suppose that
=
A
2
. The labor supply
curve is
=
+
(  )
NS
55 10 1 t w
, where
NS
is the amount of labor supplied,
w
is the real wage, and
t
is the tax rate on wage income which is 0.5.
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 Spring '10
 Tang
 Finance, Inflation, Supply And Demand, Interest, NS, general equilibrium, money demand

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