Chapter 19 MONEY SUPPLIES, PRICE LEVELS, AND THE ...
Chapter 19 MONEY SUPPLIES, PRICE LEVELS, AND THE ...
Chapter 19 MONEY SUPPLIES, PRICE LEVELS, AND THE ...
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11. In the very simple model presented here, it was assumed that the price level adjusts<br />
immediately so that the money supply (M) always equals money demand (P.Y).<br />
(a) Under the assumption of no capital flows, what is true of the trade balance?<br />
(b) Suppose money demand adjusts slowly so that the balance of payments is<br />
given by<br />
BOP = ?(Md - M),<br />
where ? is the rate of adjustment. What happens to the trade balance in<br />
response to an increase in the domestic money supply?
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