The following are the money demand and money supply functions in an economy. [ begin{gathered} M^{s}= 8,000

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The following are the money demand and money supply functions in an economy.

\[
\begin{gathered}
M^{s}=€ 8,000 \\
M^{d}=€ 40,000(0.25-i)
\end{gathered}
\]

a. Calculate the equilibrium interest rate.

b. Suppose the central bank raises the equilibrium interest rate to \(10 \%\), will there be excess money supply or money demand? What monetary policy should be followed to reach the new equilibrium interest rate?

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Macroeconomics

ISBN: 9781292160504

7th Global Edition

Authors: Olivier J. Blanchard

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