2. The real demand for money (Md = Md (nominal)/P) is expressed as a linear function:...

2. The real demand for money (Md = Md (nominal)/P) is expressed as a linear function:

(1) Md = kY-hr

(2) Ms = Md

a) Explain the sign of coefficients k and h. What types of money demand do they refer to?

b) Explain why there is no equation for the money supply.

c) Using equation (1), express i as the function of Y (simply solve it for r variable).

d) Draw the function obtained in point (c)

Expert Solution

Rahul Sunny answered 7 months ago

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