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Suppose that the Federal Reserve strictly follows a rule of keeping the interest rate at 3% per year. Initially, this interest rate equates the demand and supply of real money balances. The economy then experiences a negative shock to the demand for money. In other words, there is a drop in the demand for real balances that people want to hold at a given interest rate and real income.
(a) If the Fed didn't change the money supply, what would happen to the interest rate?
(b) If the Fed wanted to keep the interest rate constant following this money demand shock, how would it change the money supply?
(c) Suppose that over time the economy experiences many positive and negative demand shocks.
Further, suppose that the Fed follows a policy of always keeping the interest rate constant. Would the Fed's constant interest rate rule increase the variance of the money supply? Is this a bad thing under the circumstances?
Among which of the subsiquent policies would decrease demand-pull inflation.
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Elucidate what should the US Congress also the Federal Reserve do about it?
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Tom have only $60, and he want to spend it all on clothing (X) and food (Y), Price of clothing is $4. Find out the optimal values of both goods (Y*,X*) and Utility?
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how to calculate the slope then the intercept. With slope and intercept information supply and demand can be written in the familar.
Draw a graph showing hte above situation. Include in that graph, the monopolist's cost curves, demand and marginal revenue curves and the price and quantities that are indicated by the situation described above.
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