How price level in new steady-state compare to price level

Reference no: EM13925991

Consider an economy with a money-demand function given by the Baumol- Tobin model. Y and M are constant. Assume now that the real interest rate has been constant at 2%, and that it now jumps to 8%, and will remain at that level. How will the price level in the new steady-state compare to the price level in the old steady state?

Reference no: EM13925991

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