Find the general equilibrium value of the real interest rate

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Reference no: EM13184855

Desired consumption is Cd = 100 + 0.8Y - 500r - 0.5G, and desired investment is Id = 100 -500r. Real money demand is Md/P = Y - 2000i. Other variables are e = 0.05, G = 200, = 1000, and M = 2100.

(a) Find the general equilibrium values of the real interest rate, consumption, investment, and the price level.

(b) Suppose the money supply increases to 2800. Find the general equilibrium values of the real interest rate, consumption, investment, and the price level. (Assume that the expected inflation rate is unchanged.)

Reference no: EM13184855

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