Equation to derive price level differ from its initial value

Reference no: EM13199607

Consider an economy with a constant nominal money supply, a constant level of real output Y = 100, and a constant real interest rate, r = 0.10. Suppose that the income elasticity of demand is 0.5 and the interest elasticity of money demand is –0.1.

By what percentage does the equilibrium price level differ from its initial value if output increases to Y = 106 and r remains at 0.10 .

Reference no: EM13199607

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