Principles of Economics I (ECO 1020) Problem Set - Financial Market I - Questions 1. The demand for money is given by Md = $Y (0.3 - i), where SY = 120, is the nominal income. and the supply of money is 30. a) What is the equilibrium interest rate? Graphically illustrate the equilibrium. b) If the central bank wants to decrease i by 2%, at what level should it set the supply of money? c) If your nominal income increases to 200, what would be the new equilibrium interest rate? Illustrate your results in the diagram in part a)