Question
Suppose the nominal money demand is given by M d = $Y(0.25 i), $Y = $100 (1) Suppose the supply of money is $10. What
Suppose the nominal money demand is given by Md= $Y(0.25 i), $Y = $100
(1) Suppose the supply of money is $10. What is the equilibrium interest rate i in the money market?
(2) Suppose that she demands more money for a given nominal income ($Y) and interest rate (i). Hence, now, the new money demand is given by
Md = $Y(0.4 i)
Suppose that the central bank wants to keep the interest rate at the current level (from (1)). Then the central bank should set its new money supply at $________.
(3) Graphically represent the money demand and money supply for (1) and (2), respectively
For (1), I got 15% and (2) I got $25. I wanted to verify if that is correct. I mainly need help with (3).
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