In country ABC money demand is given by the following equation:

Md = 1,000 - 2,000 r + Y

Md is money demand, r is the real interest rate and Y is aggregate income. Money supply (Ms) is fixed at Ms = 700.

(a)What is the equilibrium interest rate? (3 points)

(b)Income rises from Y = 300 to Y = 400. Ms is still 700. At the previous equilibrium interest rate, there is an excess ------- (supply/demand) of money, By how much? What will happen to the interest rate?(3 points)

(c)The new equilibrium interest rate is ------(3 points)

(d)How much must the money supply increase to restore the original interest rate?(2 points)