(goods market and money market) Consider'the following short-run model of a close economy Y=150 C=40+0.5(Y-T) 1=30-5r...

(goods market and money market)
Consider'the following short-run model of a close economy
Y=150
C=40+0.5(Y-T)
1=30-5r
G=25,T=20
a.Find the real interest rate that produces equilibrium in the goods market(For
example,if real interest rate is 4%,thenr=4).Then use a saving-investment
diagram to show how the equilibrium interest rate is predicted to change if
President Trump builds"the wall"between Mexico and the U.S.(4%)
b.Suppose that the inflation rate equals 4%.The money demand function is given by
M=Y-10i
where i is the nominal interest rate in percentage term(For example,if nominal
interest rate is 3%,theni=3).Find the money supply at the equilibrium.How does
the equilibrium change if the risk of non-money asset goes down?(4%)
c.Assume that the velocity of money is constant and real GDP is
growing at 1%.If
the Fed wishes to eep the price level constant,how much(in dollars)do they need
to increase the money supply?(4%)

Expert Solution

Rahul Sunny answered 2 years ago

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