12. Suppose that the money demand function is: (1)² where r is the interest rate in percent. The money supply M is 3,000 and the price level P is fixed at 6. (optional) a. = 900 - 60i Graph the supply and demand for real money balances. Make sure to label all curves and axes. b. What is the equilibrium interest rate? What happens to the equilibrium interest rate if the supply of money is reduced from 3,000 to 2,400? Show your work. If the central bank wants the interest rate to be 3 percent, what money supply should it set? Show your work. a.
12. Suppose that the money demand function is: (1)² where r is the interest rate in percent. The money supply M is 3,000 and the price level P is fixed at 6. (optional) a. = 900 - 60i Graph the supply and demand for real money balances. Make sure to label all curves and axes. b. What is the equilibrium interest rate? What happens to the equilibrium interest rate if the supply of money is reduced from 3,000 to 2,400? Show your work. If the central bank wants the interest rate to be 3 percent, what money supply should it set? Show your work. a.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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