You are given the following information:

 

Money demand for transaction (M^d_t)            =  0.2Y

Money demand for speculation (M^d_s/P)       = 500  – 5,000r

Money supply (M_s)       =  2,500

Price level (P)                   =  2

Income level (Y)      =  10,000

 

   where r represents the rate of interest. Based on the above information,    

•     calculate the equilibrium levels of interest rate and quantity of money.

                       .                                                                     

• If the interest rate is fixed at 0.1, what is the quantity of money demanded and supplied.

                                                                                                           

• Demonstrate your answers to parts (d)(i) and (d)(ii) in an appropriate diagram.