08 Jun Question Suppose that the money demand function is (M/ P)^d = 1000-100rwhere r is the interest rate in percent. The money supply M is 1000and the price l
Question
Suppose that the money demand function is (M/ P)^d = 1000-100rwhere r is the interest rate in percent. The money supply M is 1000and the price level P is 2.
(a) Graph the supply and demand for real money balances.
(b) What is the equilibrium interest rate?
(c) Assume the price level is xed. What happens to the equilibriuminterest rate if the supply of money is raised from 1000 to1200?
(d) If the Fed wishes to raise the interest rate to 7 percent, whatmoney supply should it se
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