Macro doubt

[Arushi]

Suppose the economy is at full employment with a real rate of growth of 3%. If innovations in the banking system are reducing, ceteris paribus, the need for money at 1% per year, what rate of growth of the money supply would you recommend to achieve a long-run inflation rate of 4%?
a)  6%  
b)  7%  
c)  8%  
d)  9%

How do I go about solving this question?

[kangkan]

i think we would need the elasticity of money demand for income growth..thats how it is solved in able bernanke

[Ashima]

Hey kangkan: This bernanke is available online? Do you have a soft copy of it? Can you please share?

[ViV]

I don't know its online link. But I have soft copy of it..
Tell me your Email-ID.

[Ashima]

I got it :) Thanks anyways Viv :) By any chance do you have dornbusch ka soft copy?

[The Villain]

Check here
www.google.co.in/search?q=dornbush+macroeconomics+pdf&btnG=

or

search in en.bookfi.org

[SINGHAM]

What is the answer? Is it 7% ?

I did this way: Afterall we are talking about loooooong run
So, to achieve 3% growth rate with 4% of inflation, we need 7% money growth:-)
Any rate at "If innovations in the banking system are reducing, ceteris paribus, the need for money at 1% per year" will not affect it!

I may be wrong Please answer, what is the right answer?

[ViV]

@Ashima : Yeah! I have...

[Granpa Simpson]

According to the quantity theory of money
% change in Md= % change in P+% change in Y-% change in V
Here % change in P= 4%,
% change in V=increase by 1% as money demand parameter decreases by 1%.
%change in Y= 3%
So overall growth in money demand is  6%, to reach equilibrium the money supply has to increase by 6%...isnt it so..??

[Economics student]

Can you please send me a copy of bernanke by mail? My email id is [e-mail]

[kangkan]

@subhyanau,,i think that formula is incorrect..because that formula assues that entire change in income translates into change in money..

[kangkan]

@ashmiam..i dont have soft copies..i can t read from the computer..its very taxing

[SINGHAM]

PLEASE ANSWER! WHAT IS THE TRUE ANSWER?