Suppose that money demand is given by:
MD = $Y (0.25-i)
Where Y is $ 100
a. If the federal reserve bank sets an interest rate target of 5%, what is the money supply the federal reserve must create?
b. If the fed reserve bank wants to increase i from 5 to 10%. What is the new level of money supply the fed must create?
c. What is the effect of the federal reserve balance sheet of the increase in interest rate from 5% to 10%