2) The demand for money is given by Md = $YL(i), where L(i)= (0.3-i), $Y = 120 and the

supply of money Ms is a quarter of $Y.

a. What is the equilibrium interest rate?

b. If the central bank wants to decrease i by 2%, at what level should it set the supply of money?

c. If the people hold 25% in cash and the rest of the money in demand deposits with the banks

holding 20% in reserve requirements what would be the H^s supply of high powered money.