# The production function in an economy is Y equals A left parenthesis L plus square root...

###### Question:

The production function in an economy is Y equals A left parenthesis L plus square root of K right parenthesis where A is productivity, L is the number of workers, and K is the amount of capital stock. Suppose the current level of A is 1, K is 2500 and the labor market clears when 900 workers are employed. Money demand is M over P equals 0.5 Y minus 250 left parenthesis r plus straight pi to the power of straight e right parenthesis The expected rate of inflation is 0.02, the nominal money supply is 9100 and the price level is 20. Desired consumption is C to the power of d equals 262 plus 0.4 Y minus 200 r and desired investment is I to the power of d equals 265 minus 250 r Government purchase spending is G=70. 2) [4 points] What is the real interest rate, r, that clears the asset market when Y=1000? when Y=950?

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