The demand for money in a country is given by Md 10,000 -10,000 r+Y where Md...

 

Transcribed Image Text:

The demand for money in a country is given by Md 10,000 -10,000 r+Y where Md is money demand in TL., r is the interest rate (a 10 percent interest rate means r=0.1) and Y is national income. Suppose the money supply (Ms) is set by the Central Bank at 10,000 TL. a. Find the equilibrium interest rate and graph the money market. b. Suppose national income rises to Y-7500. What will happen in the money market and what is the new interest rate if the Central Bank does not change the money supply. c. The Central Bank wants to keep the equilibrium interest rate at the same value as in part (a). By how much should it change the money supply, given the new level of national income? d. Suppose the change occurred in part (b) and the money supply remains at 10,000 TL.., but there is no observed change in the interest rate. What might have happened that could explain this? The demand for money in a country is given by Md 10,000 -10,000 r+Y where Md is money demand in TL., r is the interest rate (a 10 percent interest rate means r=0.1) and Y is national income. Suppose the money supply (Ms) is set by the Central Bank at 10,000 TL. a. Find the equilibrium interest rate and graph the money market. b. Suppose national income rises to Y-7500. What will happen in the money market and what is the new interest rate if the Central Bank does not change the money supply. c. The Central Bank wants to keep the equilibrium interest rate at the same value as in part (a). By how much should it change the money supply, given the new level of national income? d. Suppose the change occurred in part (b) and the money supply remains at 10,000 TL.., but there is no observed change in the interest rate. What might have happened that could explain this?

Answer rating: 100% (QA)

a To find the equilibrium interest rate we need to equate the money demand Md with the money supply Ms and solve for r Md Ms 10000 10000r Y 10000 Simplifying the equation by rearranging terms 10000r Y ... View the full answer