Question: Question 5 6 Marks The table below shows the interest rate, supply, and demand for money. Interest rate (%) Demand for money (billion OF DOLLARS

Question 5 6 Marks The table below shows the interest rate, supply, and demand for money. Interest rate (%) Demand for money (billion OF DOLLARS Supply of money (billions of dollars)

8 2 4 7 3 4 6 4 4 5 5 4 4 6 4 3 7 4 2 8 4 (a) Graph the demand and supply curve for money . What is the equilibrium interest rate (b) Explain what will happen if the RBA increases the money supply by $1 billion. Show the effect on your graph and describe the money market adjustment process to a new equilibrium interest rate. What is the new equilibrium interest rate?

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