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Determine the equilibrium interest rate.

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Interest rate % Demand for money supply of money
(billions of dollars) billions of dollars
8% $100 $200
6 200 200
4 300 200
2 400 200

a. Determine the equilibrium interest rate.
b. Suppose the Fed increases the money supply by $100 billion. Show the effect in your graph, and
describe the money market adjustment process to a new equilibrium interest rate. What is the new equilibrium rate of interest?

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Solution Summary

The expert determines the equilibrium interest rates. The feds increasing the money supply are examined.

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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