Question

In: Economics

1. Show the effect of people becoming more patient in the BOND MARKET. (Note: this is...

1. Show the effect of people becoming more patient in the BOND MARKET. (Note: this is not the same as the loanable funds market.....Well, it kind of IS the same market, but it's not the same graph! Come on man, just think about it....)

2. Consider the equation of exchange. (Use the version with the values NOT the rates of change.) Let's assume that velocity is constant at 3, the money supply is 4,000. Give the price level that goes with each of the following levels of real output. Then plot them on a graph and draw a line through them. This curve will be back in a later episode.

Y          100                   200                       300                       400                        500                    600

Solutions

Expert Solution

Equation of exchange-

MV = PY

4000*3 = PY

When Y = 100, P = 120

When Y = 200, P = 60

When Y = 300, P= 40

When Y=400, P = 30

When Y =500, P = 24

When Y =600, P = 20


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