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Maintain equilibrium in financial market

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Reference no: EM131224639

Suppose Equilibrium in a financial market:

M/P = YL(i) -

a. What is an expression for Y in terms of i (i.e. Y = ....)

b. Suppose the central bank holds the money supply constant. Using part a's answer, derive dy/di. What's the sign? How does it relate to the slope of LM curve derived in class? (hint: if y=1/f(x), then y'= -f'/f(x)^2)

Now suppose that equilibirum in financial markets is:

M/P = Y (.25 - i)

c. Derive an expression for Y in terms of i (i.e. Y = ...)

d. Suppose the central bank holds the real money and supply constant. Using part c's answer, derive dy/di. Whats the sign? If there is a small increase in i, by how much does output need to increase to maintain equilibrium in financial market?

Reference no: EM131224639

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