Show the change in the demand for money and the change in the supply of money graphically and the effect on the equilibrium level of interest rate and the quantity of money. The scenarios are as follows:

SurnamesR & S = the decrease in demand for money is lesser than the increase in the supply of money

Show the solution and solve for the equilibrium interest rate if the money supply is P175,000 while the money demand is Y(0.40 - i) and yearly income is P500,000. What happens to the equilibrium level of interest rate if the money supply is doubled by the central bank? Show your computations as supporting evidences. (20 pts)

Md = Y (0.40 - i)yearly income= 500,000MS= 175,000

Md=Ms

500,000 (0.40 - i) = 175,000

500,000 (0.40) - 500,000 I = 175,000

200,000 - 500,000 I = 175,000

-5000,000 = 175,000 - 200,000

-500,000 I = -25,000

i = -25,000 / -500,000

I = 0.05 or 5%

If the money supply is doubled by the central bank:

500,000 (0.40 - i) = 350,000

0.40 - i = 350,000/500,000

0.40 - i = 0.70

- i = 0.70 - 0.40

- i = 0.3

i = -0.3 or -30%

When the money supply increases the interest rate will reduce which is negative 30%.

Show the change in the demand for money and the change in the supply of money graphically and the effect on the equilibrium level of interest rate and the quantity of money. The scenarios are as follows:

SurnamesR & S = the decrease in demand for money is lesser than the increase in the supply of money