4. Here is the expression for money market equilibrium that we discussed in class: M = P. L(Y,r + n") In growth rates, this expression is written: %AP = %AM – %AL(Y,r +n°) a) Suppose the elasticity of money demand to a change in output is 1. If the central bank causes the money supply to grow at a 12% rate, and if output grows at a 7% rate, what will the inflation rate be? b) Repeat question a, in this case with the money supply growing at a 9% rate. c) In general, what is the relationship between money growth and inflation?

4. Here is the expression for money market equilibrium that we discussed in class: M = P. L(Y,r + n") In growth rates, this expression is written: %AP = %AM – %AL(Y,r +n°) a) Suppose the elasticity of money demand to a change in output is 1. If the central bank causes the money supply to grow at a 12% rate, and if output grows at a 7% rate, what will the inflation rate be? b) Repeat question a, in this case with the money supply growing at a 9% rate. c) In general, what is the relationship between money growth and inflation?

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter12: Money And Banking

Section: Chapter Questions

Problem 13E

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