Md/P = 2400 + 0.2Y - 10,000 (r + πe).
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Suppose the real money demand function is
Md/P = 2400 + 0.2Y - 10,000 (r + πe).
Assume M = 5000, πe = .03, and Y = 5000. If the price level were to decrease from 2.5 to 2.0, then the real interest rate would decrease by how many percentage points (assuming Md, πe, and Y are unchanged)?
A) 4
B) 5
C) 9
D) 14
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You know the right answer?
Suppose the real money demand function is
Md/P = 2400 + 0.2Y - 10,000 (r + πe).
Md/P = 2400 + 0.2Y - 10,000 (r + πe).
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