Suppose the Real Money Demand Function Is Mᵈ/P = 2000

question 68

Multiple Choice

Suppose the real money demand function is Mᵈ/P = 2000 + 0.2Y - 10,000 (i - iᵐ) .Assume M = 5000,iᵐ = .04,πᵉ = .03,and Y = 5000.If the price level were to increase from 2.0 to 2.5,then the real interest rate would increase by how many percentage points?

• A)4
• B)5
• C)9
• D)14

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