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Suppose a country has a money demand function

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2) Suppose a country has a money demand function (Md/P) = kY where k is a constant parameter. The money supply grows by 12 percent per year and real income grows by 4 percent per year.;a. What is the inflation rate?;b. How would inflation be different if real income growth were higher? Explain.;c. Suppose, instead of a constant velocity money demand function, the velocity of money in this economy was growing steadily because of financial innovation. How would that affect the inflation rate? Explain

 

Paper#31522 | Written in 18-Jul-2015

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