Question
Question 40 2 points Save Answe In a particular economy the real money demand function is Md = 3000+ 0.1 Y – 10,000i. Assume that M = 6000, P= 2.0, and T = 0.02. If expected inflation increases to T = 0.03 and the equation for the new Is curve is given by r=C1+C2Y, what is the value of Cz? Round your answer to at least 5 decimal places.
Answer
LM EQUATION: Money demand=Money supply
Money demand= 3000+0.1Y-10000(r+πe)
Note: r=i-πe ,so i=r+πe
Money supply=M/P=6000/2=3000
3000+0.1Y-10000(r+0.03) =3000
0.1Y= 10000r+300
10000r= 0.1Y-300
r= 0.00001Y- 0.03
r=c2.Y+c1
c2=0.00001
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