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Consider the following equation that describes nominal money demand: M d = $Y (0.6 - 3i) M=the nominal money supply $Y = 500 (a) If

Consider the following equation that describes nominal money demand:

M_d = $Y (0.6 - 3i)

M=the nominal money supply

$Y = 500

(a) If the central bank targets the policy rate at .05, what specific action should it take?

(b) If $Y increases to 600, how should the central bank respond if it wants to continue to meet the policy rate 0f .05?

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