Question: How to answer (a) and (b) 3. Suppose the monetary base in an economy is equal to 100 and nominal GDP is equal to 10,000.

How to answer (a) and (b)

How to answer (a) and (b) 3. Suppose the monetary base in

3. Suppose the monetary base in an economy is equal to 100 and nominal GDP is equal to 10,000. The money demand function is given as Md = $Y (0.4 - 2i). Interest rates are measured as a fraction. Suppose that initially people don't hold any currency and that banks hold 10 percent of deposits as reserves. (a) (2 points) Calculate the equilibrium demand for central bank money. (b) (6 points) Solve for the equilibrium interest rate in the market for central bank money. Show your work clearly

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