Suppose that the money demand function is mpd 800 - 50r


Suppose that the money demand function is (M/P)d = 800 - 50r, where r is interest rate in percent. The money supply M is 2,000 and the price level P is fixed at 5. a. Graph the supply and demand for real money balances. b. What is equilibrium interest rate? c. What happens to the equilibrium interest rate if the supply of money is reduced from 2000 to 15000? d. If the central bank wants the interest rate to be 4 percent, what money supply should it set?

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Business Economics: Suppose that the money demand function is mpd 800 - 50r
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