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HW#3 - Macroeconomics Homework#3 1 Money demand in an...

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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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HW#3 - Macroeconomics Homework#3 1 Money demand in an...

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