IN-CLASS EXERCISE #10

The total demand for money is equal to the transactions demand plus the asset demand for money.

1. Assume that each dollar held for transactions purposes is spent on the average2 times in 2021 to buy final goods and services.If nominal GDP in 2021 was800 billion dollars, what was the transaction's demand for money?

2. The table below shows the asset demand at certain rates of interest.Using your answer to part 1, complete the table to show the total demand for money at various rates of interest.

Interest rate	Asset demand	Total demand
(in %)	(billions)	(billions)
9	50
7	90
5	130
3	170

3. If the money supply is 470 billion, what will be the equilibrium rate of interest? __________________

4. If the money supply rises to 550, will be the new equilibrium rate of interest? ___________________

5. If GDP rises, what will bethe effect on the rate of interest: Rise, Fall or No Change?Bottom of Form