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In: Economics

Find the real interest rate and the value of the price in the long run equilibrium

 

Suppose desired consumption and desired investment are Cd = 300 + 0.75(Y − T) − 300r T = 100 + 0.2Y Id = 200 − 200r G is the level of government purchases and G=600 Money demand is Md P = 0.5Y − 500(r + πe ) where the expected rate of inflation, πe , is 0.05. The nominal supply of money M = 133,200. Suppose the full employment output is 2500 and the price level in the short run is 120.

5) Find the real interest rate and the value of the price in the long run equilibrium [Hint: The long-run equilibrium output level is the full employment output level]

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Expert Solution

Rahul Sunny answered 2 years ago
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