Suppose that the money demand function is (M/ P)^d = 1000-100r where r is the interest rate in percent. The money supply M is 1000 and the price level P is 2. (a) What is the equilibrium interest rate? (b) Assume the price level is xed. What happens to the equilibrium interest rate if the supply of money is raised from 1000 to 1200?

Suppose that the money demand function is (M/ P)^d = 1000-100r where r is the interest rate in percent. The money supply M is 1000 and the price level P is 2. (a) What is the equilibrium interest rate? (b) Assume the price level is xed. What happens to the equilibrium interest rate if the supply of money is raised from 1000 to 1200?

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter13: Inflation

Section: Chapter Questions

Problem 12SQ

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