Question: Suppose that the demand for money function was MD = 4Y 1000i where MD is the quantity of money demanded, i is the rate of

Suppose that the demand for money function was MD = 4Y 1000i where MD is the quantity of money demanded, i is the rate of intest (an interest of 5 means 5 percent in this problem), and Y is real national income, which currently is 1500. The supply of money is 1000, currency in circulation outside the banking system is 100, the target reserve ratio is 10 percent, there is no cash drain in the banking system, and the recessionary gap is 250. The price level does not change in this problem.

What is the level of cash reserve of the banking system?

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