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Home / Questions / 3) Suppose the real side of an economy is characterized by:Y = 80K1/2 L1/2 K=100 and L= 100G = 3000

3) Suppose the real side of an economy is characterized by:Y = 80K1/2 L1/2 K=100 and L= 100G = 3000

3) Suppose the real side of an economy is characterized by:Y = 80K1/2 L1/2 K=100 and L= 100G = 3000 T = 3000I = 2000 – 6000r C = 600 + .6(Y-T)And suppose the nominal side of this economy is characterized by:Real money demand: (M/P)d= 0.2Y – 1000rNominal money supply: M = 3000Where P is aggregate price level, and M is nominal stock of money.a) Compute the following: Real GDP (Y), real interest rate (r ), real wage rate (W/P, in units ofgoods), aggregate price level (P), and a nominal wage rate (W, in terms of money).b) Suppose that the government raises the money supply 10% from 3000 to 3300. Report thenew values for each of the variables in part (a) above. Does the Classical Dichotomy hold inthis economy? Explain.

 

Apr 25 2020 View more View Less

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