Q. Consider an economy with a constant nominal money supply, a constant level of real output Y = 100 and a constant real interest rate r = 0.10. Assume that income elasticity of money demand is 0.5 and interest elasticity of money demand is -0.1.
By Illustrate what percentage does equilibrium cost level differ from its initial value if output increases to Y = 106 (and r remains at 0.10)?