Consider the following description of the financial sector of the economy:
(M/P)d = f + g(Y) - h(i),
πe = 0 => i = r
MS = M0
P = P0
a. Draw the LM-curve. Solve for the LM-curve expressing r in terms of Y
b. What is the slope (Δr/ΔY) of the LM-curve.
c. Draw the LM-curve if h = 0. What does this mean?
d. What happens to the slope of the LM-curve as h increases?
e. What does the LM-curve look like if g = 0, that is Y does not affect the demand for money?