The nominal demand for money 2 p the aggregate price

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= the nominal demand for money, 2. P = the aggregate price level (assumed fixed in the short-run because of sticky prices), 3. i = the nominal interest rate, and 4. Y = real economic output (and income). 15-34 The Money Market and Interest Rates Real money balances are negative correlated with the nominal interest rate because: The nominal interest rate, i, represents the opportunity cost of holding money. Real money balances are positively correlated with real income because: As income rises, more expenditures require additional transaction balances . 15-35 The Demand for Money 15-36 The Money Market and Interest Rates The money supply curve, M s /P, is assumed to be fixed by the central bank. 1. Though open-market operations, and 2. Assuming that the money multiplier is constant.
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