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Assume that the money demand is given by: M d = (0.25 - ) where is 40,000. Also, assume that the money offer is 8,000.

Assume that the money demand is given by:

M^d= (0.25 - )

where is 40,000. Also, assume that the money offer is 8,000.

a)Find the equilibrium interest rate.

b)If the central bank wants to increase the equilibrium interest rate by 10 percentage points, at what level should it raise the money supply and why?

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