3140ps3_Fall2011 - Economics 3140 Fall 2011 Problem Set 3...

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

View Full Document Right Arrow Icon
Economics 3140 Fall 2011 Problem Set 3 Due in Section Wednesday Oct. 26 Question 1: An economy begins in long-run equilibrium, and then 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 deposits, including checking accounts, so this regulatory change makes holding money more attractive. 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, what will happen to output and prices in the short run and in the long run? d. If the goal of the Fed is to stabilize the price level, should the Fed keep the money supply constant in response to this regulatory change? If not, what should it do? Why? e. If the goal of the Fed is to stabilize output, how would your answer to part (d) change? Question 2: In the short run aggregate demand model, assume that the consumption function is given by C = 200 + 0.75 (Y – T).
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/30/2011 for the course ECON 3140 taught by Professor Mbiekop during the Fall '07 term at Cornell University (Engineering School).

Page1 / 3

3140ps3_Fall2011 - Economics 3140 Fall 2011 Problem Set 3...

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

View Full Document Right Arrow Icon
Ask a homework question - tutors are online