Home / Questions / Question 3. Suppose that the money demand function takes the form: (M/P)^d = L (i,Y) = Y/(5i) The mo
3. Suppose that the money demand function takes the form: (M/P)^d = L (i,Y) = Y/(5i) The money supply grows by 10 percent per year and the real income grows by 5 percent per year. The nominal interest rate (i) grows at 3 percent and velocity is constant. 1. What is the growth rate of real money demand? 2. What is the average inflation rate? 3. How would inflation be different if real income growth were higher? Explain. 4. What is the velocity of money in this economy?
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Proof Prove that if f has an inverse function, then
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