In a particular economy the real money demand function is,

M^d/P = 200 + 0.2Y - 2000i

Assume that M = 300, P = 2.0 & ^e = 0.05

a. What is the real interest rate,r, that clears the asset market when Y =500? when Y = 600? Graph the LM Curve.

b. Repeat part a for M = 360. How does the LM curve in thiscase compare with the LM curve in Part a.?

c. Use M = 300 again and repeat part a for ^e = 0.04. Compare the LM curve in this case with the one in part a.

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