ECON420HW4

ECON420HW4 - ECON 420-002 and 004 Homework 4 Due in class...

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ECON 420-002 and 004 Homework 4 Due in class on Oct. 22, 2008 1. Suppose that a change in government regulations allows banks to start paying interest on checking accounts. Recall that the money stock is the sum of currency and demand deposits, including checking accounts, so this regulatory change makes holding money more attractive. Use the AD-AS model to answer the following questions. a. How does this change affect the demand for money? b. What happens to the velocity of money? c. If the Fed keeps the money supply constant, how will the AD curve will affected? What will happen to output and prices in the short run and in the long run? d. Should the Fed keep the money supply constant in response to this regulatory change? Why or why not? 2. Suppose the Fed reduces the money supply by 5%. a. What happens to the AD curve? b. What happens to the level of output and the price level in the short run and in the long run? c.
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This document was uploaded on 10/28/2011 for the course ECON 420 at UNC.

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ECON420HW4 - ECON 420-002 and 004 Homework 4 Due in class...

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