Using the data in the table below, answer the following questions. (Hint: draw a graph when possible)

Interest Rate% Money Demand

(billions of dollars)

18 180

17 200

16 220

15 240

14 280

13 340

12 400

11 480

10 580

Assume that the money supply is equal to 240(do not use % signs in your answers)

Part 1: What is the equilibrium rate of interest?_________

Part 2: Assume that the Bank of Canada buys bonds and increases the money supply to 400 What is the equilibrium rate of interest?_________

Part 3: A fall in income causes the demand for money to ________ by 60 billion. If the money supply is 160, what is the equilibrium rate of interest? _______

Part 4: Assuming the change in part 3, if money supply is 420, what is the equilibrium rate of interest?______

Part 5: An increase in income causes the transaction demand for money to________ by 40 billion at each interest rate. (Assume the change in part 3 did not occur. Given a money supply of 240, what is the equilibrium rate of interest?________

Part 6: Given the change in part 5, if money supply is 380, what is the equilibrium rate of interest?________