Please answer part d and e. Thank you **Problem 4: Money Market Equilibrium Analysis****Given:**The demand for real money balance is defined as:\[\frac{M^d}{P} = 500 + 0.2Y - 1000i\]Where:- $ M^d $ = demand for nominal money- $ P $ = price level- $ Y $ = income level- $ i $ = interest rateIf specific conditions are:- $ P = 10 $- $ Y = 1000 $- $ i = 0.10 $And the money market is in equilibrium, answer the following:**a. What is the equilibrium stock of nominal money?**Use the equilibrium condition $\frac{M^d}{P} = \frac{M}{P}$ to find $M$.**b. What is the velocity of money?**Velocity is calculated using the formula: $ V = \frac{PY}{M} $.**c. Suppose there is an autonomous increase in money demand by 100 with a constant nominal money supply, $ P = 10 $, and $ Y = 1000 $. What is the new equilibrium $ i $?**Calculate the new interest rate given the increase in money demand.**d. If the central bank wishes to maintain $ i = 0.10 $, what must the nominal money supply be?**Adjust the nominal money supply to keep $ i = 0.10 $ considering the increased demand.**e. Draw and label completely a money market equilibrium diagram. Label equilibrium $ \frac{M}{P} $ and $ i $ with their actual values. Draw and carefully label the changes resulting from (c) and (d) above.**The diagram should show:- The initial demand curve and the new demand curve after the increase in demand.- The money supply line shifted if necessary to keep $ i = 0.10 $.- Labels indicating initial and final equilibria.

Central bank wishes to maintain i = 0.1 0.2/0.1 x 5,000 = 10,000 Nominal Money supply = 10,000

4. Suppose demand for real money balance is 500 + 0.2Y – 1000i. P If P = 10, Y= 1000, and I = 0.10, and the money market is in equilibrium, What is the equilibrium stock of nominal money? What is the velocity of money? Suppose there is an autonomous increase in money demand by 100, with a constant nominal money supply, P = 10, and Y = 1000, what is the equilibrium i? If the central bank wishes to maintain i = 0.10, what must the nominal money supply be? Draw and label completely a money market equilibrium diagram. Label equilibrium M/P and i with their actual values. Draw and carefully label the changes that result from (c) and (d) above. a. c. d. е.

4. Suppose demand for real money balance is 500 + 0.2Y – 1000i. P If P = 10, Y= 1000, and I = 0.10, and the money market is in equilibrium, What is the equilibrium stock of nominal money? What is the velocity of money? Suppose there is an autonomous increase in money demand by 100, with a constant nominal money supply, P = 10, and Y = 1000, what is the equilibrium i? If the central bank wishes to maintain i = 0.10, what must the nominal money supply be? Draw and label completely a money market equilibrium diagram. Label equilibrium M/P and i with their actual values. Draw and carefully label the changes that result from (c) and (d) above. a. c. d. е.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Please answer part d and e. Thank you

**Problem 4: Money Market Equilibrium Analysis**

**Given:**
The demand for real money balance is defined as:

\[
\frac{M^d}{P} = 500 + 0.2Y - 1000i
\]

Where:
- $ M^d $ = demand for nominal money
- $ P $ = price level
- $ Y $ = income level
- $ i $ = interest rate

If specific conditions are:
- $ P = 10 $
- $ Y = 1000 $
- $ i = 0.10 $

And the money market is in equilibrium, answer the following:

**a. What is the equilibrium stock of nominal money?**

Use the equilibrium condition $\frac{M^d}{P} = \frac{M}{P}$ to find $M$.

**b. What is the velocity of money?**

Velocity is calculated using the formula: $ V = \frac{PY}{M} $.

**c. Suppose there is an autonomous increase in money demand by 100 with a constant nominal money supply, $ P = 10 $, and $ Y = 1000 $. What is the new equilibrium $ i $?**

Calculate the new interest rate given the increase in money demand.

**d. If the central bank wishes to maintain $ i = 0.10 $, what must the nominal money supply be?**

Adjust the nominal money supply to keep $ i = 0.10 $ considering the increased demand.

**e. Draw and label completely a money market equilibrium diagram. Label equilibrium $ \frac{M}{P} $ and $ i $ with their actual values. Draw and carefully label the changes resulting from (c) and (d) above.**

The diagram should show:
- The initial demand curve and the new demand curve after the increase in demand.
- The money supply line shifted if necessary to keep $ i = 0.10 $.
- Labels indicating initial and final equilibria.

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