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Question 4. The following are the money demand and money supply functions in an economy. Ms = EUR 8,000 Md = EUR 40,000.(0,25 - i)

Question 4. The following are the money demand and money supply functions in an economy.

Ms = EUR 8,000

Md = EUR 40,000.(0,25 - i)

a. Calculate the equilibrium interest rate.

b. Suppose the central bank raises the equilibrium interest rate to 10%, will there be excess money supply or money demand? What monetary policy should be followed to reach the new equilibrium interest rate?

p. 151

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