ANSWERS NEEDS REVISION AND FILL IN THE BLANK

B-The equilibrium rate of interest will be determined by where money demand and money supply intersect each other. In the first diagram where we have drawn money demand(Dm) and money supply(Sm0) it is clear that both curve intersect at the rate of interest of ( ) % So, equilibrium rate of interest is ( ) %.

-In the second graph, Equilibrium price level and real output are given by intersection of aggregate demand and aggregate supply curve which are 120 and 540 $ billions respectively.

C- if the economy is facing the unemployment rate of ( ) % and inflation is rising, then this economy is facing the inflationary gap where the aggregate demand is greater than the aggregate supply. To control the inflation, there is a need to reduce the money supply in an economy. Hence, the central bank should use contractionary monetary policy which helps in reducing the money supply. The interest rate will increase as a result there is a fall in the level of investment and also lead to a fall in the consumption spending. Therefore, there is a leftward shift in the aggregate demand curve which will reduce the price level and real GDP.

Fall in the level of price will eliminate the inflationary gap but there might be a rise in the unemployment rate.

D- If the monetary policy will lead to a change in the money supply by $20 billion, it means that there is a reduction in the money supply which is shown as follows:

= $ ? - $ ?

= $ ? billion

The complete table is shown as follows:

Interest Rate	Quantity Demanded ($ billions)	Quantity Supplied ($ billions)	Quantity Supplied ( Sm')
8	30	60	?
6	40	60	?
4	60	60	?
2	100	60	?
0	-	60	?

The money supply curve shifts rightwards with with new interest rate as ( ) %.

Is the change in equilibrium real output greater than or less than the shift in the AD curve? Why?

The tables below show hypothetical schedules for money demand, money supply, aggregate demand, and aggregate supply in an economy whose natural unemployment rate is estimated to be 5.5 percent. Money Demand and Supply Schedules Quantity Nominal Interest Demanded (Dm) Rate(%) ($ billions) 8 30 Quantity Supplied (Smo) (5 billions) 60 Quantity Supplied (sml) ($ billions) 6 40 60 60 4 60 2 100 60 0 60 (5 billions) ($ billions) ($ billions) Aggregate Demand and Supply Schedules Real GDP Price Level (2012 = 100) (ADO) (2012 $ billions) (AS) (2012 $ billions) (2012 $ billions) 140 450 640 130 500 590 540 540 120 110 100 590 640 520 490 The tables below show hypothetical schedules for money demand, money supply, aggregate demand, and aggregate supply in an economy whose natural unemployment rate is estimated to be 5.5 percent. Money Demand and Supply Schedules Quantity Nominal Interest Demanded (Dm) Rate(%) ($ billions) 8 30 Quantity Supplied (Smo) (5 billions) 60 Quantity Supplied (sml) ($ billions) 6 40 60 60 4 60 2 100 60 0 60 (5 billions) ($ billions) ($ billions) Aggregate Demand and Supply Schedules Real GDP Price Level (2012 = 100) (ADO) (2012 $ billions) (AS) (2012 $ billions) (2012 $ billions) 140 450 640 130 500 590 540 540 120 110 100 590 640 520 490