Consider a money market in which money demand is described by the following equation:

  

Assume that the equilibrium level of income is Y = 100, the price level is P =1, and the current level money supply is M³ = 100. Calculate and describe graphically the money market equilibrium. Suppose the economy is hit by a adverse real shock that reduces income to Y = 80. 

Illustrate (both numerically and graphically) the effect of the shock on the money market equilibrium.

Illustrate (both numerically and graphically) the central bank response to the shock, if its objective is to keep money supply constant over time. 

Illustrate (both numerically and graphically) the central bank response to the shock, if its objective is to keep the interest rate constant over time.

Ma P = 100+ Y-50i.