Question: Given Bd is P = 1100-5Q, Bs is P = 500+15Q, F (future value of discounted bond) is 1000, real money demand is L =

Given Bd is P = 1100-5Q, Bs is P = 500+15Q, F (future value of discounted bond) is 1000, real money demand is L = 0.8Y-62.5i* and real balance is $1500m.

a)Determine the equilibrium interest rate (i*) (2 marks).

b)Determine the real GDP (Y*) (2 marks)

c)Show and explain the financial market dynamics in (Bs-Bd), (Ms-Md) and (IS-LM) spaces if Bd increased to 1300-5Q (1 marks)

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