Question: Given the following information C = 10 + 0.9Yd I* = 25 + 0.8/i G = 25 t = 0.10 Ms = 120 Md =

Given the following information

C = 10 + 0.9Yd

I* = 25 + 0.8/i

G = 25 t = 0.10

Ms = 120 Md = 0.3NP + 2/i reserve requirement ratio: 0.20

a) State the equilibrium conditions for BOTH the money market and commodity market. b) Solve for the equilibrium rate of interest and NP. c) What is the level of desired investment? d) Assuming that the Money supply increases by 100 to 220 solve for the new equilibrium rate of interest, NP and desired level of investment.

e) Show your answer to the above question graphically. Pay particular attention to the initial equilibriums and the changes brought about by the change in the Money Supply.

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