Suppose the real money demand function is Md/P =2400 +0.2 Y- 10,000 (r + pe). Assume M =5000, pe=0.03, and Y =5000. If the price level were to decrease from 2.5 to 2.0, then the real interest rate would decreaseby how many percentage points (assuming Md, pe, and Yare unchanged)?
(a) 4
(b) 5
(c) 9
(d) 14
Answer: B
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