16. Assume that i) the public holds no currency, ii) the reserve ratio is 8%. The demand for money is given by

Md=$Y(0.84i)

Initially, the monetary baseH= $100 billion, and nominal income is $4,000 billion.

a. What is the demand for central bank money?

b. Calculate the equilibrium interest rate.

c. What is the overall supply of money? Is it equal to the overall demand for money at the interest rate you found in part (b)? Verify your answer.

d. What happens to the interest rate if central bank money (H) is increased to $250 billion?

e. Using the equation used in part (b), calculate the new interest rate if the money supply in the economy increases to $1,500 billion.