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The table below provides the quantity of demanded money at a given nominal interest rate. Nominal interest rate(% per year) Quantity of money demanded(trillions of
The table below provides the quantity of demanded money at a given nominal interest rate. Nominal interest rate(% per year) Quantity of money demanded(trillions of dollars) 8 0.7 6 0.9 4 1.1 2 1.3 Refer to the above table to answer the following. Make sure to provide a complete illustration. i) If the central bank supplies $1.1 trillion, what is the equilibrium nominal interest rate? (5 marks) ii) Explain how equilibrium is restored if the interest rate is greater than the equilibrium interest rate found in part (i). (15 marks)
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