The money market is in equilibrium when the supply of money (Ms) equals the demand for money (Md). Given Ms = 350 and Md = 650 – 150r, where r is the real rate of interest, in percent. Calculate the equilibrium interest rate. How does the equilibrium interest rate alter if Bangladesh Bank (Central Bank of Bangladesh) takes contractionary monetary policy (by changing the money supply)? What is the effect of this policy on the Bangladesh economy? Explain graphically and mathematically.

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