Assume the demand for real money balances is given by 

(an interest rate of 2% is entered into this formula as 2). Suppose Y = 12,900 billion, so that 

– 150i (in billions of $).

a) Calculate the demand for real money balances at interest rates of 4%, 3%, and 1%.

b) Plot the points from part (a) on a graph with the nominal interest rate on the vertical axis and the quantity of real money balances on the horizontal axis.

Transcribed Image Text:

Md P 4/6 Y - 150i