Question
Central Bank of Kaishala directly controls the money
supply, with real money balances set at #1600. Government expenditures is #250 and taxes are #200. Consumption, investment and the demand for real money balances are C = 200 + 0.25*Yd (Yd = Y – T) I = 150 + 0.25*Y – 1000*i (M/P)d = 2*Y – 8000*i Here # is the currency of Kaishala The Government of Kaishala decides to increase the real balances to #1840. What is the change in consumption and investment after the increase?Solution
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